Re:Reddit’s profane, greedy traders are shaking up the stock...
by kccqzy on Thursday February 27, 2020 @01:21PM
(#22436063)
It means he doesn't have the entire notional amount of an option to cover the short put.
For example, if you want to sell an SPX put at $3000 strike, then the notional value of that trade is $300k. He doesn't have $300k in the account for that one trade though. If you want a leverage factor of 2x, then for $300k in the account you'd trade two such options, each having a margin equity of $150k. Since you're trading two options, the profit and loss are both enlarged by 2x. The worst case scenario is that if SPX drops by 50% and he doesn't take any action before that, he'd have no money left.
The author mentioned that he uses a leverage of 2x to 3x. That means you need $100k to $150k in the account to trade a single contract. Hardly for beginners.
For example, if you want to sell an SPX put at $3000 strike, then the notional value of that trade is $300k. He doesn't have $300k in the account for that one trade though. If you want a leverage factor of 2x, then for $300k in the account you'd trade two such options, each having a margin equity of $150k. Since you're trading two options, the profit and loss are both enlarged by 2x. The worst case scenario is that if SPX drops by 50% and he doesn't take any action before that, he'd have no money left.
The author mentioned that he uses a leverage of 2x to 3x. That means you need $100k to $150k in the account to trade a single contract. Hardly for beginners.