Trading With Margin - How I Do It

Trading With Margin - How I Do It
To get the transcript and MP3, go to: www.rockwelltrading.com/coffe...
Intro: 0:00
What Is Margin?: 0:21
How To Open A Margin Account: 1:08
What Is Buying Power?: 2:04
Portfolio Margin 7:36
What Is Margin?
When opening a trading account, you can open a CASH or a MARGIN account.
With a cash account, if you put $10,000 into the cash account, you have $10,000 in buying power.
Now, when you have a margin account when you put in $10,000 in cash, the broker will actually lend you another $10,000 giving you $20,000 in buying power.
How To Open A Margin Account?
So with tastyworks, which is what I use, If you want to open an account, it asks what kind of account do you want to open? Is it an individual account, an entity, a trust, or a joint account?
And do you want to open a margin, cash, or retirement account?
In a cash or retirement account, the broker does not lend you money, but when you use a margin account, you're getting a 2:1 buying power.
What Is Buying Power?
- Buying power for options is always non-leveraged. So if you put $10,000 in cash, even in a margin account, it means that you have $10,000 in buying power for options.
- Buying power for stocks is leveraged. So $10,000 in cash will give you $20,000 in buying power.
- Portfolio margin
Buying Power For Stocks VS Options
AAPL Example:
What happens if you want to sell, let's say you want to trade the Wheel.
- If you're selling puts, you might be forced to buy Apple at 125 & for each option you have to buy 100 shares of Apple at $125 if assigned, so you would have to bring $12,500 to the table, right?
When you're selling options, the broker is already giving you a discount. The buying power that will be reduced from your options is $2,202. So as you can see, if you are buying Apple at 125, you would have to bring $12,500 to the table, but here the broker is only charging you $2,202.
On a $10,000 account, you could sell 4 of these options. So we see that the broker will charge you $8,795. So on a $10,000 account, at first it seems that you have enough margin for this. Wrong. Don't do that.
Doing it that way would be irresponsible.
On a $10,000 account you're getting $20,000 in buying power. So if you're selling one option, and you would get assigned, then you would have to buy stocks for $12,500 and only have $7,500 left, this is why you only sell one option, and even though your broker will only charge you $2,205.
This is the right way to do this because you're not over-leveraging yourself.
What if you DID sell 4 options and got assigned? You would have to bring to the table 4 times $12,500, so this is $50,000, but you only have $20,000 in buying power.
You are $30,000 short & this $30K becomes a so-called margin call.
A margin call means that right now you have to wire the broker $30,000
Portfolio Margin.
You are getting a 5:1 leverage, or some brokers even offer a 6:1 leverage, instead of 2:1.
I personally use this "excess buying power" when things go wrong when I need to save a trade that is in trouble.
Recommended links and videos:
Markus’ Plan: rockwelltrading.com/myplan
Wheel Playlist: • Options Income Trading...
tastyworks: rockwelltrading.com/tastyworks
Best Brokerage Account 2020: • Best Brokerage Account...
#MarginTrading #MarginAccount #StockMarket
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[@rockwelltradingservices]

I hope this help you understand how to trade with a margin account responsibly. What else would you like to see me do a video on? Let me know in the comments below. Recommended links and videos: Markus’ Plan: rockwelltrading.com/myplan Wheel Playlist: kzbin.info/aero/PLBa3sAx-Io2mybLLdWtbjTFqK9-BR5SJb tastyworks: rockwelltrading.com/tastyworks Best Brokerage Account 2020: kzbin.info/www/bejne/an7ShmCLnql0n5Y

[@chrstfer2452]

Why do you even ask if its helpful? Darn right dude, wicked helpful. I knew what margin was already but its all the side comments. Glad to have found you; subbed.

[@pv20ft6]

How do you fly a rescue mission when things going wrong? Can you give me a quick example? Thanks

[@yhnmk1]

Missed you over the long week bro! Good to see you again!

[@rockwelltradingservices]

Thank you! :)

[@robertrohrberg8860]

Herzlichen Dank, Markus, für Deine prompte Antwort👍🏻😊

[@rockwelltradingservices]

You are welcome! I am glad that this helps! :)

[@HagaseUS]

Excellent video thanks!!

[@rockwelltradingservices]

Thank you! :)

[@electricmorning484]

Thanks for the explanation. I've been considering trading with margin.

[@rockwelltradingservices]

You are welcome! I am glad that this helps! :)

[@JuanFelipeCalle]

This is the explanation I've been looking for the past week. I've seen so many videos about making money on options, but I have yet to see any besides yours that explains the crucial risk of margin (or the "discount") as it applies to options.

[@rockwelltradingservices]

Hi Phill Calle, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍

[@winterism]

that's absolutely RIGHT! avoid the honeycomb offered by brokers, NEVER over-leverage! thx Markus for the kind reminder.

[@rockwelltradingservices]

You are welcome! I am glad that this helps! :)

[@thejourneymaninvestor6087]

I actually did not realize that buying power reduction was applied to the determination of required funds when selling a cash secured puts on Tasty. Good video, very helpful! Thanks for sharing!

[@rockwelltradingservices]

Hi TheJourneymanInvestor, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍

[@zachmorris8475]

You are... the man!

[@rockwelltradingservices]

Awesome! Thank you for watching! :)

[@lubomirmarkov5025]

Please review different margin requirements for different stocks especially for those with high volatility or it aplies only for trading stocks not options?If it would be of your convinience may you compare terms used in tastyworks with those in IB?None of them sound the same to me.

[@danrodriguez2276]

@Markus Heitkoetter can you please explain me one thing? When you say to sell a PUT, you mean sell the PUT where you don't own the shares yet, right? This is not the operation to buy a CALL/PUT and then sell it, I just want to make sure I don't go into that margin call process, without margin though because I'm only using a cash account, thank you.

[@davidgross2684]

thanks

[@rockwelltradingservices]

You are welcome! What did you like about the video?

[@eyoblibla3947]

You really remind me of the dude...I love the dude! Keep up the good work man :)

[@rockwelltradingservices]

Thank you! :)

[@dirtyhandsoftherepublic7740]

Markus. You are my trading Shaman. Guide me in the ways of the option. Love you man.

[@rockwelltradingservices]

Thank you! :)

[@Downsize1940]

Good video but can you go over the interest charge of using margin?

[@starlaw3320]

Do you have a video about shorting stock? Since margin is needed, how do they charge interest? Daily? How long until I have to close the position? One day? 1 week? Thank you.

[@RodderickPrinceParker]

How do you avoid PDT when trading Spx spreads?

[@kiran7575]

If I a margin account and I sell naked option (put or call) and I do intraday trade or scalping . will there be any margin call impacting me if I am following PDT rule(My balance will be always above 25K) and also for selling one option SPY I might need around 9K but with margin it will come to around 2K right? Please help me understand them. I am using TD Ameritrade

[@user-mx8xg5ex6f]

hello sir how long I can allowed to hold my margin position

[@leafs109]

Can you make a similar video on how margin works with interactive brokers ? I’m very confused because it seems I have no buying power when owning stocks and using all my cash but tons of buying power if I own no stocks and trade options only

[@Psi-Storm]

Owning Stocks still gives you buying power, not just as much as free cash. It depends on the volatility of the stock, how many percent of BP you lose for owning them. Blue Chips/index funds subtract around 20% if i remember correctly. Owning long options removes 100% buying power of the premium you paid, but they help in reducing the risk in spreads, so you need significantly less BP for the short option. Interactive brokers has a margin overview that shows how much buying power your positions need.

[@loreall.2461]

I’m curious about this too. I have a “cash” account and a “margin” account with Fidelity and it seems I’m not getting any discounts when trading on margin. What gives?

[@westmime1083]

Hello! In my interactivebrokers trading account i have a NetLiq of 8500. I have open positions that use 15 800 of buyingpower and i still have 29 650 left in buyingpower, how is this possible in a normal margin account? 🤔

[@lupusk9productions]

So in your 250,000 account videos - Do you size your total put positions to stay under 250,000 if assigned to avoid using too much margin? Or do you size based off the 500k w/ margin? I don't want to borrow any money from the broker, I only have margin because of the advanced trading strategies unlocked by it.

[@vevasam]

Hi Marcus thank you for clarifying on the broker's discount for BP Eff. Is there a possibility in Tastyworks to know the actual BP? Because if I have to use a slightly complex spread it would be difficult to calculate it manually. Thanks again for your informative videos.

[@rockwelltradingservices]

Hi K, yes, you can add the "Buying Power" as a column to your "POSITION OVERVIEW" when using the desktop app. Just add the column and you'll see it on the right hand side of your position. Does this help?

[@vevasam]

@@rockwelltradingservices Thank you. It helps a lot.

[@adamnarbeaux5898]

Markus!!! Awesome video, my fellow Gen X!

[@rockwelltradingservices]

Thank you, fellow Gen X! :)

[@johnbre20]

I’m pretty over leveraged and been on a rescue mission pass 3 years since Ukraine was invaded by Russia

[@dragandaniel7052]

Good Morning Markus, thanks for your video's, i have 2 questions. What can go wrong with covered calls? And is batter to use a covered/naked put to buy the stock, so i can colect the premium and buy the stock if im assigned? Thanks

[@TnavresGaming]

Wheel Strategy is: 1) Sell Put. 1a) If you get assigned the 100 shares, then 2) Sell Covered Call. If you don't get assigned you repeat #1. You get a higher premium the closer you are to the current stock price. What can go wrong. Example you sell a PUT for ABC Stock @ strike price of $20 (current price is $20.75). Price drops to $20 and you get assigned the stock, but then the price continues to drop to $15. You don't want to sell a COVERED CALL @ for less than your assigned costs. There are ways to reduce Cost Basis and Markus shares how to rescue a PUT by selling another PUT (in this case) for less than $15 ($14.50 for example), thereby lowering cost basis of $20 (original put) +14.50 (rescue PUT to lower cost basis to $17.50. So now you wouldn't have to wait as long for stock price to recover al the way back to $20. Unless a stock REALLY tanks. Devour Markus' content. He really covers this well.

[@dragandaniel7052]

@@TnavresGaming Thanks for information, can I ask you, do you really earn money with trading? I was really into this subject for a year, but everywhere I go, everyone sell something, like a course, a group membership...I even watched a trader who worked for Goldman shacks and he said that almost everything it's a hoax, they want you to loose money, every KZbin " guru " have some something to win from the broker

[@dragandaniel7052]

@@TnavresGaming Now, I don't remember exactly everything, but personally I think trading its a good way to earn money if you invest big numbers and wait for couple o years for the price to grow

[@TnavresGaming]

@@dragandaniel7052 -- I opened a Roth IRA as I'm quickly approaching retirement and had nothing but SSI. (Disclaimer: I have no courses or guru materials for you -- grin). I made early mistakes, but corrected them quickly. Such as using LIMIT orders vs MARKET. Then selling PUTS on stocks I was going to buy anyway. Then I realized I could build up my nestegg faster with PUTS & COVERED CALLS vs investing in dividend stocks. I have keyed in on doing WEEKLIES, even if the return is 1% for the week vs 3,4,5% or more (again for a week). Even if you made back 1/2% return a week, that's still a 24% return on your capital. I have friends who buy & hold. But all stock investing has risks. The goal is to use mechanics that minimize potential for loss/high risk. You notice in his video, he diversified across several stocks and didn't for example sell (100) PUTS in only one stock, even though that may have made far more $$$ back, but at the potential for a 100% loss. I have kept it simple. I sell Cash Secured Puts and if assigned, sell Covered Calls. For now, I'm not trying to master every way to do options. I was exactly like you. Research. Hear take $100 dollars and turn into a million in 365 days, etc (laughs). Top advice I heard was, "Anyone offering a course, avoid." If they have a patreon/donation, I'm fine with and in many cases, I donate or become a patreon subscriber. It also helps to watch people like Markus (even though he is in another stratosphere for trading - - he's still down to earth humble) until the content seeps in.

[@michaelperkins3003]

No. You can still get equal money from cash accounts, from certain firms. And using Margin is a bad idea to use, it's a credit line and you may be on the hook at the end of the day if trading smaller stocks with special requirements. It's a credit card you don't want to use.

[@Luftwaffe777]

4:09 Question: When I sell 1 Put Option so those Bid/Ask prices ($1.24, $1.25,...) is my premium. Is it finally for 1 option to multiply by 100 so when I sell 1 option I get $124, $125, .. or this premium for 1 Option (whole set of 100 shares is $1.24, $1.25,...) ? Thank you.

[@rockwelltradingservices]

The premium is $124 / $125 since each options controls 100 shares. So you need to multiply the bid/ask price by 100 for each option that you buy or sell. Does this help?

[@Luftwaffe777]

@@rockwelltradingservices Thanks Markus. Yes it helps:)

[@user-uw6rr5mv9h]

Markus, say I have a 20k margin account. If I trade credit spreads with, say, a 5-point spread, do brokers allow me to sell 40 such spreads without being subject to a margin call, since the risk is "built in"?

[@Psi-Storm]

You can sell more, since minimum you can subtract the credit from the spread. So if you get $1 for it, your risk is only $400 for 1 spread. Then there are some additional discounts if you don't go too ham. 50 Apple $5 bull put spreads ($1,4 credit) would take $4400 buying power at interactive brokers, while 100 contracts take $24000, when it should be around $36000 if you had to cover the full risk.

[@mejaymichael]

Hi Markus. If you get assigned on all 5 wheel positIons to the max 20k in a margin account and the stock market were to drop say, 50%, your 10k cash invested would reduce to 5k. would the broker ask you to top up? I’m not sure what happens here... thank you

[@jarrellpyrojohnson]

I'm just responding because I am curious of the answer as well

[@thomasd5488]

@Jay Michael The broker is your lender, not your partner. The loss is all yours. Your equity in the account would be zero. You definitely would get a margin call and have to chose to put in more money, or sell the shares and be wiped out.

[@seanntomas3815]

Hope you had great weekend. A couple days without you is a loss to us all. Your valuable knowledge is an asset too us all. Thank you for all your help.

[@rockwelltradingservices]

I will be back soon! :

[@mattdark1478]

Hey Markus quick question, I got approved for margin on Webull. I’m allowed to buy stocks using margin, but I can’t sell puts using margin. When I messaged Webull about this, they responded by saying that “options are not marginable”. Does this mean I can’t trade options on margin?

[@rockwelltradingservices]

You don't get margin for stocks, only for options. This can get a little confusing because if you have approval to sell naked puts, LESS money is required for the trade so it "appears" to be margin.

[@jarrellpyrojohnson]

Hey Markus so with a 50k marrgin account it would be ok to buy 4 contracts of apple even if I get assigned?

[@tonychia2227]

only if it's $125 or below. If you sold the $130 AAPL put then 400*130=$52000 then you are over a little bit. If you are over by alot then you will get a margin call.

[@jarrellpyrojohnson]

@@tonychia2227 thanks, I'll just stick to 40 dollar stocks. Lol. I can get more contracts and make more and still not be over leveraged. Well at least for a 50k account

[@bluesky5587]

Just do not get assigned.....otherwise margin interest will kill u and make your trades useless as u will pay dollars a day interest......so margin is useful to allow put sales but keep them out of money.

[@Psi-Storm]

@@tonychia2227 He has 100k stock buying power with that 50k account. So pretty far away from a margin call. Even selling 8 contracts, Apple would have to drop below $20 for a margin call.

[@lucauau]

Which is the margine usage cost?

[@rockwelltradingservices]

Next to nothing. Last year, I made $155,000 in realized profits and paid less than $1,200 in margin interest, i.e. less than 1%.

[@dianeldieguez2922]

Question: Thats works the same way when you buy options?? Or only when you sell?

[@rockwelltradingservices]

When you BUY an option, the only "margin" required is the purchase price of the option. So it's way less. Does this help?

[@dianeldieguez2922]

@@rockwelltradingservices ok but, as you explained, when we sell options at tasty, the broker is only going to require a percentage of what you actually need to support that sale. When we buy options does it work the same way or in that case, if we have to pay the full heat of the contract, and not a percentage as when we sell? Thank u a lot🙏🏽

[@rockwelltradingservices]

When you SELL an option, you have to pay 25% of the STRIKE PRICE as a margin, but when you BUY an option, you have to pay the FULL premium. Does this help?

[@dianeldieguez2922]

@@rockwelltradingservices thank u so much🙏🏽🙏🏽

[@rockwelltradingservices]

😊 You are welcome! I am glad that this helps!

[@KRIPSYNODUTS]

Hello Markus, I understand that you have $50k account with $50k margin. Using that you can safely sell 8 puts for $125 ($125>

[@kitchensfrance4782]

Hey there, that's exactly what I'm thinking and potentially planning to do. I don't see the problem here and as you say if excesired then switch to selling covered calls. Paying back the margin is an option I wouldn't take in view that the brokers interest rates are so low (I.B.) Shame you didn't get an answer cos it looks good to me, gonna try it out on Monday 👍

[@rafaelgonzalezv]

In any case, be aware that after being assignment, the price stock could drop and your portfolio worth less, this is the danger…

[@andrewcicconi5703]

Wow your positivity is amazing! Loved watching the wheel strategy video and this! Do you have any tips for someone trying to get into options trading but only has about $4000? I am new and have my personal account with about $4000 and an account run by a bank with ~$11k getting about 5% ROI. I am nervous to move that money out and controlling all my money when I am so new to it.

[@manamimnm]

Start with a paper account till you’re confident enough

[@datboinate0192]

Why you always do sell business never buy? Buy calls & puts is way better than sell.

[@michaelperkins3003]

And the ridiculous remark of "most people start out w/a $10K account" let's me know your not in real time.

[@michaelperkins3003]

Tasty, Robin hood, etc, are not trusted entities. Be careful.

[@normalizedaudio2481]

I always use butter. I don't like margarine on my toast.

[@paulforsell5197]

Stop throwing up the Illuminati signs with your hands

[@rockwelltradingservices]

Lol! I am not aware of what those signs are.