Option Strategy
Option Strategy
Option Strategy refers to a portfolio of an account, typically an investment strategy that includes stock and option, for the purpose of hedging, to reduce the risk exposure of the positions. As the risk exposure will be mitigated by using option strategy, client's margin requirement will be lowered in a way that commensurate with the change of the exposure.
Application
Please contact our customer service team for more information about how to enable the option strategy of your account.
Option Strategies
Tiger currently offers eighteen option strategies as follows:
Covered Call: A combination of 1 lot short position in a call option and 100 shares long position in the same underlying U.S. stock.
Covered Put: A combination of 1 lot short position in a put option and 100 shares short position in the same underlying U.S. stock.
Call Vertical Spread: A combination of 1 lot short position in a call option and 1 lot long position in a call option. This option strategy can be combined when the call options aforementioned have the same underlying (U.S. stock or index), the same expiration date, and different strike prices.
Put Vertical Spread: A combination of 1 lot short position in a put option and 1 lot long position in a put option. This option strategy can be combined when the put options aforementioned have the same underlying (U.S. stock or index), the same expiration date, and different strike prices.
Short Call and Put: A combination of 1 lot short position in a call option and 1 lot short position in a put option. This option strategy can be combined when both options aforementioned have the same underlying (U.S. stock or index) and the same expiration date. The strike price of put option is equal to or less than the strike price of call option.
Protective Call: A combination of 1 lot long position in a call option and 100 shares short position in the same underlying U.S. stock.
Protective Put: A combination of 1 lot long position in a put option and 100 shares long position in the same underlying U.S. stock.
Call Calendar Spread: A combination of 1 lot long position in a call option and 1 lot short position in a call option. This option strategy can be combined when the call options aforementioned have the same underlying (U.S. stock or index), the strike price can be different. The expiration date of short position is earlier than the expiration date of long position.（VIX index options do not support margin reduction for this combination）
Put Calendar Spread: A combination of 1 lot long position in a put option and 1 lot short position in a put option. This option strategy can be combined when the put options aforementioned have the same underlying (U.S. stock or index), the strike price can be different. The expiration date of short position is earlier than the expiration date of long position.（VIX index options do not support margin reduction for this combination）
Call Butterfly: It consists of a long position of 1 lot of low-strike call options, 2 short positions of mid-strike call options, and 1 long position of high-strike call options, and the above reverse positions can also be formed; The composition of the portfolio must meet the following conditions: the underlying (U.S. stock or index) of the aforementioned options has the same expiration date, and the middle strike price minus the low strike price is equal to the high strike price minus the middle strike price.
Put Butterfly: It consists of a long position of 1 lot of a low-strike put option, a short position of 2 lots of an intermediate strike put option, and a long position of 1 lot of a high-strike put option and the above opposite position can also be formed; The composition of the portfolio must meet the following conditions: the underlying (U.S. stock or index) of the aforementioned options has the same expiration date, and the middle strike price minus the low strike price is equal to the high strike price minus the middle strike price.
Iron Butterfly: consists of a short position of 1 lot of a low-strike put option, a long position of 1 lot of a mid-strike call option, a long position of 1 lot of a mid-strike put option, and a short position of 1 lot of a high-strike call option and the above opposite position can also be formed; The composition of the portfolio must meet the following conditions: the underlying (U.S. stock or index) of the aforementioned options has the same expiration date, and the middle strike price minus the low strike price is equal to the high strike price minus the middle strike price.
Call Condor: It consists of a long position of 1 lot of the lowest strike price call option, 1 short position of the lower strike price call option, 1 short position of the higher strike price call option, and 1 long position of the highest strike price call option and the above opposite position can also be formed; The composition of the portfolio must meet the following conditions: the underlying (U.S. stock or index) of the aforementioned options has the same expiration date, and the lower strike price minus the highest strike price is equal to the highest strike price minus the higher strike price.
Put Condor: It consists of a long position of 1 put option with the lowest strike, a short position with a lower strike put option, a short position with a higher strike put option, and a long position with the highest strike put option and the opposite position can also be formed; The composition of the portfolio must meet the following conditions: the underlying (U.S. stock or index) of the aforementioned options has the same expiration date, and the lower strike price minus the highest strike price is equal to the highest strike price minus the higher strike price.
Iron Condor: It consists of a short position of 1 put option with lowest strike, a long position with a lower strike put option, a long position with a higher strike call option, and a long position with a call option with the highest strike price and the opposite position can also be formed; The composition of the portfolio must meet the following conditions: the underlying (U.S. stock or index) of the aforementioned options has the same expiration date, and the lower strike price minus the highest strike price is equal to the highest strike price minus the higher strike price.
Box: It consists of a long position of 1 lot of a low strike call option, a short position of 1 lot of a low strike put option, a short position of 1 lot of a high strike call option, and a long position of 1 lot of the highest strike put option and the opposite position can also be formed; The composition of the portfolio must meet the following conditions: the underlying (U.S. stock or index) and expiration date of the aforementioned options are the same, the low strike price of the call option and put option with the same strike price is the same, and the high strike price of the call option and put option with the same strike price is the same.
Asymmetric box: It consists of a short position of 1 put option with lowest strike, a long position with 1 put option with lower strike, a long position with 1 lot of call option with higher strike, and a short position with 1 lot of call option with highest strike, and the opposite position can also be formed; The composition of the portfolio must meet the following conditions: the underlying (U.S. stock or index) of the aforementioned options has the same expiration date, and the lower strike price minus the highest strike price is not equal to the highest strike price minus the higher strike price.
Custom: You can customize the standard combinations that are not listed above, and the custom combinations can contain the above standard combinations, and the maximum number of legs that support custom options is 4 legs.
Option strategies margin requirements warnings
The margin requirements related to options strategy are as follows.
If your newly acquired options or stocks can constitute an options strategy with your existing positions, the margin requirements for the positions in your options strategy may be reduced. Margin reductions for options strategies at Tiger are based on their market risk levels, liquidity, options expiration dates, position conditions and other factors.
If you liquidate part of your position in an options strategy, the options strategy will be invalidated and if margin reduction was applied to that options strategy, such a reduction will also be invalidated, which will in turn result in a lowering of your account's securities segment's risk rate. Please ensure that you have sufficient funds for that segment (i.e. not futures segment) before liquidating a position in an options strategy as forced liquidation will occur when EL<0. *Excess Liquidity
If you need to liquidate part of your positions in the options strategy, we recommend that you consider liquidating the options positions in an options strategy first in order to avoid an increase in margin caused by your liquidation action. If you liquidate the stock positions in the options strategy first but only partially filled, it could cause the options strategy to lapse resulting in a higher margin requirement for the remaining options and stock positions than the margin requirement of the options strategy.
If you hold an options strategy that is approaching expiration, especially due to the risk of exercise of sold options, the probability and amount of additional margin requirements for your options strategy position will increase as the expiration date approaches, the proportion of the sold options' market value in total assets increases, and the degree of being in-the-money increases. It is recommended that you pay attention to the risks associated with approaching expiration.
Please note that options strategies cannot currently be applied to some positions with their symbols or contract multipliers changed due to corporate actions such as a split or a merger. If a position in an options strategy is subject to such a corporate action, this will invalidate the options strategy and will most possibly result in an increased margin requirement too. Please ensure that you have sufficient funds in your account before liquidating your position in the option strategy as a forced liquidation may occur when EL<0.
If you hold the vertical spreads, calendar spreads, and diagonal spreads through expiration: lf the underlying’s price closes above the short strike but below the long strike, your short call will likely be assigned and your long call will expire worthless. Be cautious of this scenario. lf your short call is assigned you'll be left with a short stock position, which carries undefined risk. Meanwhile, your long call will no longer exist to offset the assignment. This may potentially result in losses greater than the theoretical max loss of the call credit spread.
Important: To help mitigate this risk, Tiger may close your position prior to market close on the expiration date; however, this is done on a best-effort basis. Ultimately, you are fully responsible for managing the risk within your account.