What strike price put option to buy to avoid margin call ?

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sharukh
Posts: 634
Joined: Mon Jun 20, 2016 10:19 am

What strike price put option to buy to avoid margin call ?

Post by sharukh »

Hi,

Say SPY is priced at $400.
I have $210

Option 1:.
Buy a long call of strike price of 200.
Say $10 extra for the protection and leverage. It will be priced probably at $210.
Will never get a Margin call



Option 2:
I can use margin leverage at approximately 2X
Say I borrow 200 and use my 200 and pay for 1 SPY
Initial margin requirements is 50%
Maintenance margin is 30%
So margin call at approximately 28% down.
1- (1-0.5)/(1-0.3) =~ 28.5%

What strike of protective put option should one buy to make the above equivalent to long call.
Based on the put call parity.
The answer seems to be $200 strike put.


So if one buys a $200 put option, borrow $200 and add own funds of $200 to buy a SPY at $400,. Does this mean they won't ever get a Margin call ?
As the above will be equivalent to a simple long call at strike of $200




Thank you.
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