Because of the Volatility Spike today, I had a lot of messages from folks where they said that their brokerage is increasing the margin requirements for naked calls for all volatility products.
Instead of panicking, you can handle the situation by doing the following:
• If you have sold call(s) for this week's expiry, buy the call back.
• Then sell the exact number of calls 3 weeks further for a suitable strike price i.e same or higher strike price
I did the same, and was able to increase my buying power substantially!!.
No doubt, since you sold this weeks call first and are now closing it at a higher price, you have a paper loss. But you are freeing a lot of buying power.
Next, since volatility is elevated and immediately you are selling equal number of calls (preferably at a higher strike price further weeks out), your buying power reduction will be lesser.
So the net result is you will have more liquidity!!!
After trading is over, I will send an email today evening (tomorrow’s daily tip) on what exactly I did.
For now, I hope you are able to follow this.
Thanks and Happy Shorting Volatility
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The material in this newsletter, the website http://TradingVolatility.info as well as in the book "Trading Volatility - Using the 50-30-20 Strategy" is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. As an investor, you are fully responsible for any investment decision that you make.