hithere wrote: ↑Wed Feb 09, 2022 12:16 pmOne question though - isn't your portfolio supposed to conform to the RegT margin requirement at the end of each trading day? I may be wrong about this.
Thanks for that question--I think it clears up a mistake in the scenario I laid out. You're right that IB checks RegT margin at 3:50 pm each day. But as I understand it--and believe me, I'm going to make sure I understand it inside and out before making a trade--the daily RegT margin requirement equals only "
today's trades initial margin requirements” (see
https://www.interactivebrokers.com/en/g ... rgin.php#2).
So yes, I think I'd run into RegT trouble if I tried to buy the equity ETFs and short the box all in the
same day--since the Reg T margin requirement for that day would equal the initial margin requirement those trades. But if those trades happened on separate days, the Reg T margin requirement would not include the prior day's trades.
hithere wrote: ↑Wed Feb 09, 2022 12:16 pmRegarding the second case - let's switch from Net Liquidation Value to Equity With Loan, since this is the metric IB uses in determining whether to liquidate your positions. Your maintenance margin would be $43.75K indeed, however your EWL would still be $50K (perhaps slightly lower to be precise), so you would be dangerously close to liquidation. If you must conform to the RegT requirement at the end of the day as I suspect, then the picture gets even more grim.
I think that distinction addresses at least your RegT concern above (but not your maintenance margin concern). Let's break this up into two days and see how things would work--assuming that the equities remain flat between Day 1 and Day 2.
Day 1
- Transaction: Buy $75,000 of VOO with $50,000 cash and $25,000 margin
- Reg T Initial margin requirement: $37,500 (50% of VOO)
- End of day margin requirement: $37,500
- Equity with loan value: $50,000 ($75,000 VOO + negative $25,000 cash balance)
- End of day RegT cushion: $12,500 ($50,000 - $37,500) [room for a ~17% drop in VOO]
- Maintenance margin: $18,750 (25% of VOO)
- End of day maintenance cushion: $31,250 ($50,000 - $18,750) [room for a ~42% drop in VOO]
Day 2
- Transaction: Short $25,000 box spread
- Reg T Initial margin requirement: $25,000 (100% of spread)
- End of day margin requirement: $25,000
- Equity with loan value: $50,000 ($75,000 VOO + negative $25,000 box spread balance)
- End of day RegT cushion: $25,000 ($50,000 - $25,000) [room for a ~33% drop in VOO]
- Maintenance margin: $43,750 (25% of VOO + box spread's initial margin requirement)
- End of day maintenance cushion: $6,250 ($50,000 - $43,750) [room for 12.5% drop in VOO]
If this is correct, then it seems to me that the problem is
not the end-of-day margin requirement, it's the
maintenance margin requirement. As best I can tell, IB would treat this a a short box spread and would require a maintenance margin equal to the initial margin, which in turn equals the spread (see
https://www.interactivebrokers.com/en/t ... ptions.php).
Does that seem right? I can't understand why IB would require a 100% maintenance margin on a box spread and only 25% on an equity position, so something feels off. But if that's indeed how it would work, then I can see why doing this without Portfolio Margin is asking for trouble.
Edit: In other words, merely swapping margin debt for box spread debt has the effect of cutting my maintenance cushion five-fold. That can't be right, can it?
1.5x leverage | 45% market-cap [VTI, VEA, VWO] + 45% factor tilted [AVUV, AVDV, AVES] + 10% trend following [KMLM, DBMF]