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Margin Requirement for a BWB Trade

  1. Has anyone come across issues with margin requirement for a broken wing butterfly trade? It's a debit transaction. There should be no additional margin beyond what you pay for the trade (the debit amount). However, OptionsHouse has a different take on it. Their margin requirement is based on the consideration that a BWB is actually a combination of 2 different trades (a credit spread and a debit spread) and they need margin for both sides of the trade as if you are putting in two separate trades. When I contacted their customer service, their answer is BWB is not a "reconginzed trading strategy" for them. Has anybody faced this issue with any other broker?
     
  2. The margin required for a BWB is the max risk, not the net debit.
     
  3. Agreed. It's the max risk; not the net debit. But the way OptionsHouse is calculating margin, it's lot more than the max risk (about 3 times more).
     
  4. One way to get around this issue is to put a traditional (equal wing) butterfly and then a put in a vertical spread to cut the wing shorter on one side. But then you will have to deal with additional commission and any potenial slippage.
     
  5. IB and TOS treat these as 1 trade. Might be time to switch brokers.
     
  6. I had a Trademonster/Optionhouse acct. for a few years along with a TOS account . Last year I just decided it wasn't worth the frustration of having to put up with their old margin requirements and moved everything to TOS .
     
  7. I still have account with them. Don't trade very often and mostly simple strategies with setups I can wait for.
    The reason is it gives me some kind of protection vs. MFGlobal scenario. Even if it's mostly psychological effect it still helps.
     
  8. PKMTrader,
    I had the exact same issue that you are describing
    The debit was the max risk but due to the pairing or whatever the program was doing to the order it messed up the pairing to look like you need a lot more margin
    I answered this similar question just a couple of days ago on this website on "Margin for BWB" post
    First they said it was their policy but after keep explaining it to them and showing the example they finally realized that something was wrong and they fixed it

    I also modified my strategy but not because it wasn't working It was to get a somewhat wider tent so I am using a regular fly with an unbalanced condor on the upside rather than waiting to get some profit and than do a RH It does mean an extra commission but hopefully there should be no need to make additional adjustments on the upside