ToS New Margin Requirements

Discussion in 'Online Brokers' started by Miles, May 22, 2018.

  1. Miles

    Miles Member

    Hey All,
    I've been chugging away with RTTs for about 7-8 months now and have never had such a tidy consistent monthly profit-maker. I received an email 6 days ago from my broker (ToS - Canadian side) indicating that new margin calculation rules would be taking effect soon and I might be affected. I took a quick glance and it seemed to just mention iron condor/fly positions, so I ignored it for the time being (woops..). Long story short, it took affect today and I was immediately issued a margin call. Turns out that any imbalanced condor or fly of any kind will NOT have opposite legs matched to assess margin.

    Current Example:
    20 Jul 18 expiry - 5 contract RTT w strikes at 2550, 2600, 2635. Max downside risk of $7450, upside line is currently at $50 profit on expiration graph.
    Today my margin requirement went from ~$7500 to $25000 for this trade. I did the math, and sure enough, they are summing the risk on each leg independently without considering that 1 vertical will be profitable when the other is underwater. The risk on the 2550/2600 put credit spread is $22925 and the risk on the 2600/2635 debit spread is $2075, for $25000 total.

    Keep in mind that I've just been playing with a <$20k account, and being able to reliably trade <8k has allowed me to cover the front month, back month, and maintain a 20% pool for emergency adjustments. I still had my 15 Jun 18 trade open this morning as well, which had an upper long of 2425 and could be sold immediately for >95% of the max profit. That said, it only moved my margin from 40k to 25k and I still will need to sell at least a portion of my July trade today to meet the new criteria.

    Is anyone else dealing with this fairly sudden change? I could see this feeling much worse for anyone who happened to be underwater on a trade. Even had I properly interpreted the initial notification on May 16, with such long DTE trades I couldn't have done much other than sell if I was at a hypothetical loss, as I wouldn't have enough time for theta to work its magic.

    Lastly, any tips on what to do going forward. I don't particularly want to be forced into an every other month trade, or more than halving my size so I can trade every month. Either option cuts profitability by more than 50%. I understand that I could call to request some kind of consideration (unlikely) or move brokerages, which is frustrating as I only just signed up with ToS in October. In any case, I'd be interested to hear if anyone else was caught by this, has been caught by similar changes in the past, and what their game plan is/was going forward.

  2. status1

    status1 Well-Known Member

    Unfortunately there are very few brokerages that handle margin for BWB properly
    Some brokerages don't even take BWB trades calling them ratio trades
    Some of them are due to the way they pair the trades instead of keeping it as a BWB trade they split it up into 2 spreads and place the margin on the higher risk one which in your case is the 2600/2550 so 5 contracts at 50 wide that's $25000
    You can try a few things to get around this problem
    You can try to place a symetrical butterfly first and than add a short vertical a little lower
    This may work as an antry trade but it may not work if you have to make an adjustment to the fly in which case it becomes unbalanced so you may not be able to do a RH
    The other choice is to do less contracts probably only 3 if you are ok with less profits
    You can also do asymetrical put condors with different ratios to suit your needs
  3. Miles

    Miles Member

    Thanks Status1, good to know - I will produce a few simulated trades and play with the analysis tool to see how things react. My old brokerage Questrade wouldn't even let me place BWB style orders, hence the move to ToS. I guess I was just surprised given that they were handling margin perfectly reasonably before and are now choosing to change it. I also wasn't sure if it was going to be isolated to the Canadian side of the brokerage or US as well. Seems like this would really hamper the profitability of RTT style trades for ToS users across the board. I did go ahead and liquidate the July position so I can reassess and determine how normal adjustments will shift margin with the new system. All told, I guess I am just disappointed that I can't continue like before. I was really getting into a groove with how to manage these trades and enjoying how hands off they were the majority of the time. Of course I can still do all this, but losing >50% profitability is hard, especially when Canadian ToS commissions were already eating 10-15% of every successful trade.
  4. status1

    status1 Well-Known Member

    I hope this change does not spread to the US version of TOS as this will affect a lot of RTT traders with small accounts
    I adapted by transitioning away from RTT type trades and more into condor and simple put spreads
  5. Miles

    Miles Member

    Agreed - figured if it had happened across the board I wouldn't be the only one complaining here, hah!

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