Understanding day trading requirements

Spreads example 1:

Here is an example of the credit spread closed at once:

Trade 1 (9 a.m.): Buy to open (BTO) 10 XYZ Feb 60 calls $2.30/Sell to open (STO) 10 XYZ Feb 55 calls $3.75 ($1.45 credit)

Trade 2 (10:15 a.m.):  Sell to close (STC) 10 XYZ Feb 60 calls/Buy to close (BTC 10) XYZ Feb 55 calls

Since this credit spread was entered into and closed at the same time, the day trade requirement is the difference between the strike less the credit taken times the volume or $3,550.

(($60 – $55) – $1.45) * (10 * 100) = $3,550

Spreads example 2:

Here is an example of the credit spread legs being closed individually:

Trade 1 (9 a.m.): BTO 10 XYZ Feb 60 calls $2.30/STO 10 XYZ Feb 55 calls $3.75 ($1.45 credit).
Trade 2 (10:15 a.m.): BTC 10 XYZ Feb 55 calls
Trade 3 (11 a.m.): STC 10 XYZ Feb 60 calls

The day trade requirement will be the premium of the long and short opening trades added together. In this case, the day trade charge will be $2,300 + $3,750 = $6,050.

Condor Spreads example 1:

Trade 1 (10 a.m.): BTO 10 ZZZ Jan 150 calls $1.50/STO 10 ZZZ Jan 140 calls $6.50/BTO 10 ZZZ Jan 120 puts $0.75/STO 10 ZZZ Jan 130 puts $2.25. ($6.50 credit)

Trade 2 (2:30 p.m.): Close the condor in one spread order

Because the condor was entered into and closed at the same time, the requirement for this trade is identical to exchange requirements, which is $3,500. This is the difference if the trade is closed with two separate orders.

Condor Spreads example 2:

Trade 1 (10 a.m.): BTO 10 ZZZ Jan 150 calls $1.50/STO 10 ZZZ Jan 140 calls $6.50/BTO 10 ZZZ Jan 120 puts $0.75/STO 10 ZZZ Jan 130 puts $2.25. ($6.50 credit)

Trade 2 (12 p.m.): STC 10 ZZZ Jan 150 calls/BTC 10 ZZZ Jan 140 calls
Trade 3 (2 p.m.): STC 10 ZZZ Jan 120 puts/BTC 10 ZZZ Jan 130 puts

In this case, both sides of the condor will have a day trade requirement. The day trade charge in this example is $5,000 for the call side and $8,500 for the put side, or a total of $13,500.

Note: Butterflies and other multi-leg orders are treated in the same manner.

Single naked option example:

Trade 1 (10 a.m.): STO 25 XYZ Dec 60 calls $2.50 (current stock price 58. Stock price at the close of previous business day is 60)

The charge against overnight buying power for entering into this trade is $31,250.

25 * 100 * (20% of closing stock price ($60.00) + premium ($2.50) – Out of the money amount ($2.00)) = $31,250

Trade 2 (12 p.m.): BTC 25 XYZ Dec 60 calls

The customer has now day traded the naked options. The price of the underlying used in the calculation is now 60, not 58. The day trade requirement is now $37,500. This is a difference of $6,250 from the exchange requirement shown above.

Strangle example 1:

Trade 1 (8:33 a.m.): STO 20 XYZ April 150 calls $1.50/STO 20 XYZ April 130 puts $1.25. Current stock price is 140. Stock price at the close of the previous business day is $142.50.

The charge against overnight buying power for this strangle is $50,500.

Trade 2 (1:50 p.m.): BTC the strangle

The price of the underlying securities used in the calculation is now 142.50, not 140, and each side of the strangle, both put and call, has a day trade requirement.

The day trade margin requirement for this strangle is $102,500. This is a difference of $52,000 from the exchange requirement shown above.

Strangle example 2:

A customer comes into the day with $10,000 of starting day trading buying power and a short position of 50 XYZ March 40 calls ($2.30). XYZ closed at 38 the previous night. The requirement for this position is $49,000.

Trade 1 (9:15 a.m.): STO 50 XYZ March 35 puts $1.00. Stock price remains 38.

This trade is paired against the short call position and the exchange requirement to place this trade is the premium of the puts or $5,000. The customer does not need to put up any additional funds as the $5,000 in proceeds are applied to the trade.

Trade 2 (11:45 a.m.): BTC 50 XYZ March 35 puts

The customer has day traded the puts. The requirement for this trade is $32,500 and a day trade call in the amount of $22,500 will be issued to the customer.