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paq12x

yes, margin use is automatic when you have a margin account. You'll pay interest monthly which shows up on the statement. The margin interest is tax deductable.


Wu-Han

Thanks that’s good to know


HandiCAPEable

This


Asian_Dumpring

There's actually a button for conveying this sort of general agreement


dnaonurface12

This.


HandiCAPEable

The comment second is stronger than the upvote! Lol 😅


ssavu

The 1% ish is monthly not yearly?


teteban79

It's a bit more than 1% yearly, IBKR has probably the best margin rates for a retail broker


horizons59

Currently about 2% annually.


m1nhuh

That's less than inflation! You could probably borrow money from IBKR and buy a year's worth of jarred or non-perishable food and come out ahead haha.


PHI41-NE33

can't go tits up


Wu-Han

It’s around 2% annual depending on amount…$25k vs $1m https://www.interactivebrokers.com/en/trading/margin.php


[deleted]

You only get charged interest if you use more than you have in your account.


GabbarWpg

Your margin will be used for the assignment. If your margin requirement rises too much, the broker will square off part of your portfolio to bring their risk-level down. For example, IBKR will lend you 3K to buy the contract at 10k (with your 7k). Say now your portfolio does not meet maintenance margin anymore. IBKR will now sell those 100 shares at market-price (which is likely lower than assigned price and hence your pnl shows loss). Hopefully your account will now have enough cash to meet minimum requirements.


oneislandgirl

I always wonder what the brokers would liquidate to cover the margin call. (I don't trade on margin so don't know) Would they really sell 100 shares or would they just sell enough to recoup the margin amount needed?


SillyFlyGuy

Your broker will move to cover themselves first, 100% of the time. When you let someone else do your trading remember they are not acting with a fiduciary duty to maximize your returns, only to protect themselves. They have no reason to go out of their way to hurt you, but it might not feel that way.


GabbarWpg

That depends on the broker. Some will liquidate only as much as necessary but then that maybe done multiple times if losses continue. Some will totally get rid of the trouble making position. IBKR has a 'liquidate last' flag that you can set to indicate you want to sacrifice other positions before this on is liquidated.


dednoob6

assignment is handled automatically by ibkr, they will show up in your account the next morning following assignment day. if ibkr has determined you are good to hold that naked short put anyway, you do not need to worry about autoliq on your shares unless the underlying goes way south overnight. if you are worried about that, heres how i would handle it, buy a couple slightly otm (otm to the point where gamma starts to drop off) medium dated puts against it day before before assignment and hold it until you manage the long shares or the option expires. you basically transform it into a strangle at that point. if it tanks overnight and you are assigned the long shares the puts will get >1.0 delta and you actually offset your loss, and you got plenty of room to come up with a follow-up plan. if you are assigned and the long shares go up, the otmness of the puts means the price drop on them isnt as painful as your gain on the shares. if you anticipate it pushing sideways, manage it and sell out the puts/shares as you please, as theta isnt super relevant at a medium exp.


Wu-Han

Thanks, that’s helpful. How do you determine “otm enough to where gamma drops off”?


dednoob6

Just open an options chain that shows gamma with the rest of the details and starting from atm look more and more otm until the gamma number starts decreasing. Get the first otm strike that is lower gamma than the ones closer to the money. Btw for illiquid options chains, you are liable to get market maker'd so make sure you got decent open interest too.


GoromGoromLuchi

Use full margin to buy a dividend paying stock like PFE. Don’t keep any cash. Dividends will beat the margin interest and then you will also have capital gains


TheoHornsby

With a margin account, you don't have to do anything. Borrow fees accrue daily and they deduct it from your account monthly.


[deleted]

There is no interst unless you use more than your accounts worth.


Downtown-Honeydew960

which is what OP is doing?


[deleted]

It’s only 7 percent a year caculsted per day


Downtown-Honeydew960

which is more than “no interest” no?


[deleted]

A 20k margin loan would cost about $3.85 per day


TheoHornsby

>For IBKR users: If I’m about to be assigned a $10k position through a short put, but only have $7k cash, how does it work in terms of using margin? Does it automatically use margin to fund the $3k difference? And then obviously I pay interest on this $3k. Perhaps the OP's question (see above) would clue you into why "Borrow fees accrue daily and they deduct it from your account monthly" ???


theultimateroryr

Can you buy to close for a loss?


Wu-Han

Wouldn’t make sense given it’s slightly above ATM


[deleted]

Yes it would be close for debit greater than you collected in premium. So if collected 2.00 in premium. And buy to close for debit of 3.50. You’d lose $150


jch9876

Can you roll for a small credit? (Depending on the stock) It might be better use of your money to have cash on hand than getting assigned for 10K.


Wu-Han

Good point, should look into that but I doubt it given it’s so close to ATM. Actually should do this at open tmw


perfectionisenemy

You can definitely roll it out for credit if the price is not deep ITM.


DreamySensei

This question impresses me with the desire to have a healthy respect for risk management. I always set a mental stop loss so that I'm never in this situation in the first place. You could have ended up rolling for eternity, could you imagine? I'd have to have a zealous conviction that the asset is worth it.


[deleted]

Roll the put out the next cycle before it loses extrinisic value and you get an early assignment. If you get assigned just sell the stock immediately at the open and if you want keep the position sell another put


Flaze909

As others have mentioned already, you would have been paying margin interest the moment you opened a credit position so long as you're on a margin account. Upon getting assigned, you will have a negative cash balance of -$3000, which will incur even higher costs from ordinary margin usage if I recall correctly. You could top-up the $3000 to make these costs go away. The smarter move is to roll it out to another date, either same strike or a lower strike for a credit. This is more efficient as the credit should outweigh the margin interest if you intend to keep the position.


5349

You only pay margin interest when your cash balance is negative. You are not charged interest for selling a put.


Flaze909

It depends on the account size and its existing positions (see exposure fee): [https://www.interactivebrokers.com/en/trading/margin-requirements.php](https://www.interactivebrokers.com/en/trading/margin-requirements.php) I'm scrolling through my past statements now and it does seem like I'm not being charged anything yet despite having some non secured short option positions.


5349

The exposure fee is not interest. It's a charge for high-risk accounts.


Flaze909

But this definition of high risk applies to having short option positions that constitute margin though? Surely an account that holds only equity can't be labelled a high-risk account and incur exposure fees. Then again you might be right on IBKR not charging margin interest unless the cash balance becomes negative. I would need to dig deeper into my past statements to be sure.


5349

The IBKR page about the exposure fee says only a small proportion of accounts are affected. How could they deduct any interest when you're not borrowing any money from them? Obviously you would start paying interest if you get assigned on a short put and your cash balance goes negative then.


NukedOgre

You 100% do not get charged interest on margin unless you are actually negative.


Flaze909

Yea I just checked my statements to be sure, good to know I can turn up the leverage now lol.


SillyFlyGuy

WallStreetBets is ---> thataway. lol good luck!


Wu-Han

Shit, wish you had commented before market close. Oh well, let’s see how it goes tmw and I’ll roll if possible. But question: wouldn’t it always be a negative cash balance if you use margin to buy a stock?


Flaze909

Not quite sure what your question is asking, but yes, you can purchase stock while leaving yourself with a negative cash balance. So long as you're on a margin account, all net credit trades will involve margin usage, except for covered calls. Theoretically you could take the assignment and keep selling weekly covered calls for premium to reduce this negative figure, so long as the premium outweighs the additional interest from having a negative cash balance.


Wu-Han

Ok I’ll use some actual numbers and different factors to make the example a bit more clear. Cash: $73k (only $50k is USD) Initial margin: $76k Maint margin: $69k Net liquidation value: $135k Now if I sold a $700 put on TSLA expiring Friday, I’d technically have enough cash to support the position without margin. 1. I only have $50k USD so do other currencies get converted automatically to fill the $20k balance? 2. Can I decide to only use $50k USD and use $20k USD on margin (probably dumb)? 3. Any other points to mention on initial margin and maint margin levels? Am I taking too much risk?


Flaze909

Not 100% sure but based on what I recall happened to me: 1. The other currencies do not get automatically converted. 2. You will have a negative $20k USD cash position 3. Maintenance margin does not change despite having a negative cash balance. However you will start paying extra interest on this negative cash balance. The risk lies in how the rest of your portfolio fares under these market conditions and you'll be liquidated accordingly if the maintenance margin blows up. As always I would advise rolling the TSLA put downwards to any strike that gets you net credit for maybe 1-2 weeks at a time.


Wu-Han

Thanks I wouldn’t mind owning TSLA at $700 in the short term volatility. ATM CC weekly is around $40.00. I’ve checked how much interest is charged on negative cash balances. Seems relatively low at $1.50 per day if I need to borrow $15k (not $20k as I mentioned earlier) Basically (if you don’t read the link) their example calculation is $100k x (2.18% + 1.5%)/360 = $10 per day https://www.interactivebrokers.com/en/index.php?f=5425


NukedOgre

One of the biggest reasons for using margin is not the loan, its that you are technically using your brokers money and dont have to worry about money settling, free ride violations etc.