**Understanding Margin Calls and How to Prevent Them**
A margin call is a situation no trader wants to face. It occurs when your portfolio's equity falls below the required maintenance margin set by your broker. Simply put, if the value of your investments drops too much, your broker will demand that you either deposit more funds or sell some of your assets to cover the shortfall. Failing to meet a margin call can result in the forced sale of your securities, often at unfavorable prices.
### How to Prevent a Margin Call
To avoid a margin call, it's crucial to monitor your maintenance margin closely. This is the amount of equity you must maintain in your account to support your margin positions. One key point is that while you can often ignore the unrealized profit and loss (PnL) in the short term, you must never let your maintenance margin exceed your portfolio value.
An expert once advised me that margin calls are triggered precisely when your maintenance margin surpasses your portfolio value. Therefore, always keep a close eye on this figure to ensure your positions remain safe. One good practice is to keep your margin usage below 50%. This provides a cushion against market fluctuations, reducing the likelihood of a margin call.
### A Trick to Increase Margin: Selling Calls and Puts on a Strangle
One effective strategy to boost your available margin is by selling calls and puts on a strangle. For example, with my current Google (GOOGL) positions, I have a covered call at $120 and a put at $145, expiring in 2025 and 2024, respectively. This strategy allows me to collect premiums, which can increase my available margin while keeping my risk under control.
Currently, my margin risk is in a "Safe" state with an excess liquidity of $70,623.98, making up 72% of my portfolio. This safety buffer allows me to manage my positions without fear of a sudden margin call, even in a volatile market.
Finally, does this strategy work for futures portfolios? Yes, it generally does, but you need to be even more vigilant with futures due to their higher volatility. Keeping your margin usage low, ideally under 50%, is a good rule of thumb to maintain a strong margin of safety across all asset classes.
精彩评论