The Professional's Advantage
The Professional's Advantage
SageTrader, LLC offers Customer Portfolio Margin accounts to individual and institutional clients who have demonstrated an acceptable or sufficient level of trading experience and risk management. The minimum requirement for a new account is $5 million.
Customer Portfolio Margin accounts are provided electronic trading front-ends to enter orders directly and to view positions in real time. In addition, Merrill Lynch Professional Clearing provides daily account statements available from its website and SageTrader prepares and sends supplemental daily account statements by email or secure online logon.
SageTrader, LLC will only open Customer Portfolio Margin accounts that can meet the following requirements:
The U.S. Securities and Exchange Commission instituted in 2007 a broad revision to its margin regulations that resulted in a risk-based margining program for qualified U.S. investors.
Portfolio Margin is a method for computing margin for stock and option positions that is based on the risk of the position rather than the fixed percentages of Regulation T and FINRA Rule 2520. The method uses theoretical pricing models to calculate the loss of a position at different price points above and below current stock or index price. The largest loss identified is the margin of the position. The result is often lower margin requirements than would be calculated under Regulation T, where margin is required for both the stock and any offsetting option positions.
For decades margin requirements for securities (stocks, options, and single stock futures) accounts have been calculated under this Regulation T rules-based policy. This calculation methodology applies fixed percentages to pre-defined combination strategies. With Portfolio Margin, the margin is based on the largest potential loss found by valuing the portfolio over a range of underlying prices, and volatilities. It is available for all US stocks, OCC stock and index options, and US single stock futures positions.
According to Options Clearing Corporation (OCC) defined product baskets, positions for stocks and options are subject to a test of +/- 15% price changes. Small cap broad-based indices are tested with +/- 10% price changes. Large cap broad-based indices are tested with +6%/-8% price changes. The high to low range is divided into eight equidistant points, and the loss on the position is calculated at each of the eight points and the two high and low points.
Beyond the margins computed by this method, there are the following adjustments:
These adjustments can increase the calculated margin requirement, which can be adjusted by the clearing broker for additional risk parameters. Stocks and indices with high-implied volatility, an individual position that is highly concentrated, or positions that have large Vega or other risk situations will have margin requirements higher than the minimums established by the regulations.
Prior to any trading account being opened, all potential clients wishing to trade under the guidelines of a portfolio margined account will undergo a risk interview with SageTrader in order for the firm to ascertain the client's knowledge of option trading, option strategies, and the risks associated with a portfolio margined account. In addition, all required account documentation is to be completed and reviewed by both SageTrader and its clearing firms, prior to an account approval and opening.
SageTrader reserves the right to approve or not approve an account for portfolio margin status for any reason. SageTrader also reserves the right to sell out any position at any time in a portfolio-margined account.
Portfolio Margin risks do not represent all risks associated with positions in a particular portfolio. Dramatic day-to-day changes in the implied volatilities are not represented in the risk analysis. Margin requirements may be significantly greater than simple Risk-Based Haircuts (RBH) calculations. RBH is not a Value at Risk (VAR) calculation and does not make a correlation between stocks in a portfolio.
SageTrader and its clearing firms will apply their own risk guidelines and limits to all approved portfolio margined accounts. These guidelines and limits may be more stringent than what is available under portfolio margining rules.
SageTrader may also require additional margin beyond the risk-based margin requirements, particularly for positions with naked or uncovered calls or puts.
Note that you can lose more funds than you deposit in the margin account; SageTrader can increase its "house" maintenance margin requirements at any time and is not required to provide advance written notice; and you are not entitled to an extension of time on a margin call.
Please note that current or pending portfolio margining rules, guidelines and requirements are subject to change by the SEC, NYSE or other regulatory entities.
Certain risk guidelines for Portfolio Margin accounts are set by the SEC. Other regulatory agencies, SageTrader's clearing company and SageTrader itself can differ depending on the type of instruments in a trading account and other factors. Portfolio margin risk levels and related capital requirements can significantly vary day-to-day depending on the volatility of positions in a portfolio and on the movements of the overall market. The potential loss for the writing of uncovered puts and calls is unlimited and the use of margining may accelerate the velocity of potential losses and may require additional capital to cover any and all margining requirements. Multiple leg option strategies, including spreads, will incur multiple commission charges. High trading volumes and potential congested system access may delay execution of trades.