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Why Do Gold Futures Options Calls Require Margin?


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Why Do Gold Futures Options Calls Require Margin?

  #1 (permalink)
GoldBugged
Seattle, WA
 
Posts: 8 since Sep 2019
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Hello All,
This is my first post and something I have been wrestling with for some time and I hope somebody with more experience in Futures Options can help me out.

I am trying to figure out why Gold Futures Options Calls require margin.
I was looking today in TWS and saw an Option for Gold and considered purchasing one, until I found it carried a 3000 dollar margin requirement. So I had to pause and figure out if such a high margin makes it worth paying for when I can for free just buy the underlying future. And I'm really confused as to why there is even a margin requirement at all. After all it's a call not a put.

If I do exercise it, I'm in the black and don't need any capital at all as it's an instantaneous buy/sell of the underlying asset, 100oz gold, and I just take the profit.

If I don't exercise it, I lost the option price of about 30-50 dollars, which I paid up front. So it's not possible for anybody else to lose.

So why in the world do I need to put down a margin of $3000 for the option?
There must be something fundamental about the process that I'm missing.
I thought maybe when I exercise the option, that they are actually expecting me to take physical possession and put up the 150 grand to buy 100oz gold, but then IB does not allow taking physical posession as far as I know. So again I'm lost on this one.

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  #3 (permalink)
 
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 SMCJB 
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You'd need to check the SPAN margin requirement but the margin requirement for a Long Option should always be less than or equal to a) the premium of the option and b) the margin requirement of a futures contract. Current margin requirement for non-members trading GC is $4950, so its easy to imagine how an at-the-money option would require $2475 in margin. Note For Short Options a) above does not apply.

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GoldBugged
Seattle, WA
 
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SMCJB View Post
You'd need to check the SPAN margin requirement but the margin requirement for a Long Option should always be less than or equal to a) the premium of the option and b) the margin requirement of a futures contract. Current margin requirement for non-members trading GC is $4950, so its easy to imagine how an at-the-money option would require $2475 in margin. Note For Short Options a) above does not apply.

Thanks for the response. But I am still confused as to why there is any margin at all required for a Futures Call Option.
I don't see any scenario where it would be needed to cover anything for anybody.

Aren't these the only two scenarios:
1. If I do exercise it, I'm in the black and don't need any capital at all as it's an instantaneous buy/sell of the underlying asset, 100oz gold, and I just take the profit.

2. If I don't exercise it, I lost the option price of about 30-50 dollars, which I paid up front. So it's not possible for anybody else to lose.

Maybe I should ask this way: is there any scenario where I could possibly lose my margin, or anybody else could stand to gain from my having one?

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SMCJB's Avatar
 SMCJB 
Houston TX
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Platform: TT and Stellar
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GoldBugged View Post
2. If I don't exercise it, I lost the option price of about 30-50 dollars, which I paid up front.

You pay margin INSTEAD of paying the premium up front. Margin is often less than the premium.

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GoldBugged
Seattle, WA
 
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SMCJB View Post
You pay margin INSTEAD of paying the premium up front. Margin is often less than the premium.

Well that explains a lot. Excellent. Thank you sir!

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Last Updated on September 17, 2019


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