Comparing risk and margin policies...sort of.

As a result of my "edge of seat" spread trades in BBY and SPY I am getting to know the market activity based on various reports a lot better than I did. Although the market does not necessarily do what I might expect, or anyone else for that matter, but it certainly points to possible days of volatility.

I am not sure how much value there is in this information. Had I entered the trades that I was planning to I would not be presented with this issue at all.

I will be looking at changing my opening spreads in SPY in future. I want to get minimum risk by putting the short strike option as far as possible from the price. I have revamped my price targets to get away from the idea of the $10 day, as I may have mentioned before.

Due to my spreadsheet forecasting I figure that a $300 return on an iron condor spread with up to $5000 risked is a good return as it amounts to about 6% ROR, as long as the trade is in the range of a 30 day timeline. This is really the reason for leaving the $10 per day alone as it pushes me toward the edge between low and high risk trades. I figure if I can squeeze $300 for every $5000 trade each month I can turn a decent cashflow.

While this will work well in the Optioneer futures contract setup I will still run the numbers on the Questrade SPY trades and see where I get. The major difference between the two is how risk is calculated and therefore how cash allocation is figured.

Questrade.

A 25 contract call spread on SPY can be placed with a $5000 risk (less the sold call credit, but I will ignore that for this example)
A corresponding 25 contract put spread can also be placed with a $5000 risk.
As it stands I might be hard pressed to see $300 from each of these trades but definitely could by combining them.
These two trades combined create an iron condor with a total risk of $10,000 with Questrade's separate spread trade method... the call spread is completely separate from the put spread.

Optioneer/Strikepoint

The trades are a bit different here as futures contracts use $250 points unlike the SPY $1 points. The result is the important issue.

A call spread based on the S&P500 futures placed with a $5000 risk.
A corresponding put spread placed also with $5000 risk
Like the above example a low risk call or put spread alone may not generate $300 very often, combining them will.

With Optioneer/Strikepoint the combined trade is taken as one trade and, seeing as the price can only be at one point at a time, only one side is ever at risk on any trade. Therefore they consider the two $5000 risk trades as one trade risking the same $5000.

This allows me to basically produce double the cashflow based on capital in the account.

If I could talk Questrade into letting me use their margin account in a similar manner when trading options on the same underlying security I could produce at least the same results and I would definitely continue to use their account for these spread trades... for some reason I don't see that happening though.

Although I wil try.

Jeff.