Update (12/31/2022):
It seems that new users have trouble registering for the forum. The confirmation email never shows up. I’ve decided to phase out this forum and transition over to a new forum plugin. The new location is here:
https://earlyretirementnow.com/forum-3/
Policies – please read!
- Everyone can read posts, but to start a new topic or add a reply you’d need to register. To create an ID, please verify your email address. You will get a link at that email address and you can then pick a password.
- Be courteous to others. Treat others like you like to be treated. Discuss the issues. No ad-hominem attacks!
- It’s OK to include external links if they are relevant. But please avoid spamming! Please no affiliate links.
- Before starting a new topic, please check if that question/topic has been discussed before already and add to that discussion instead of starting a new topic.
- If you’ve written a cool blog post that you want to share with others please post this in the “Self-Promo” category only!
- Please read the usual Disclaimers and the Privacy Policy!
- The forum policies may be amended in the future!
Thanks Big ERN for bringing up the idea of selling SPX put options! I just want to clarify a couple of things before I move from paper to live trading.
Do I need to apply for the portfolio margin account and IB pro for better margin requirements? I see that it requires having $110,000 and can not drop below $100,000.
In the trader workstation when I look through the option chain I see an option to view the exchange through "SMART" or "CBOE." Does it matter which one I choose?
Also, with interest rates potentially going up, what bonds does everyone currently have with their margin cash?
Thanks again and I look forward to sharing my trades on the monthly threads once I'm live!
Also, I'm curious how everyone customized their windows on the trader workstation. I found this set up that looks good:
https://www.youtube.com/watch?v=WiYHawH1t9w
Once I make the custom changes will it apply on IBKR Mobile?
Looks really convoluted. Here's my SPX puts trading screen:
SPX puts of the current expiration date. I display only the strikes I actually shorted.
Below thar the SPX puts with the 3/19 expiration. For now, I keep this in steps of 25. Once I start trading I might add the strikes in between.
(original size image is here)
This looks great! Simple and organized. Thank you! I'll play around with it this week.
Yes, Portfolio Margin will get you better margin requirements. $110,000 is probably the minimum I'd use for a single short SPX put option.
SMART vs. CBOE shouldn't make a difference.
I like the Preferred Stocks with floating rates:
| AHL PRC |
| ASRVP |
| BAC PRE |
| BML PRL |
| C PRJ |
| C PRK |
| CUBI PRC |
| CUBI PRD |
| CUBI PRE |
| CUBI PRF |
| GS PRj |
| GS PRk |
| KEY PRI |
| MS PRE |
| MS PRI |
| PBCTP |
| PNC PRP |
| RF PRB |
| SCE PRH |
| SCE PRJ |
| SCE PRK |
| SPKEP |
| STT PRG |
| USB PRM |
| WFC PRQ |
| WFC PRR |
| ZIONO |
Thanks. I'll research more on each of these preferred stocks. I did some reading on adjustable rate preferred stocks and it looks like they are more favorable during rising interest rates which is great during these current environments. Fixed rate preferred would be the opposite.
For preferred stocks, would it be better to just get a broad exposure by putting the margin cash in a fund like PFF or PFFD (any other you suggest)? I dont really have a preference for any particular company and would otherwise just choose 5 big names with high yields.
In part 3 of your put writing series you mentioned you allocated 30% to muni bond funds, 40% muni closed end funds, 25% preferred shares, and 5% cash. Do you still have this same allocation for your margin cash or did you start increasing the preferred shares portion?
@fi4wanderlust I used to own both PFF and PFFD. But I don't like the expense ratios. I can just buy my own preferred and do much better.
I also like the idea of buying the mostly the floating rate preferred to hedge against the potential of future yield increases.
@earlyretirementnowcom my take is munis are better when working with tax bracket (state and local) pushing 30%. I'm around 4% blended on munis, which is 5.5% equivalent.
Floating preferreds make more sense when there is more room in lower brackets.
@navypack But the preferreds are mostly ordinary dividends, so you have a lower tax burden on those. 30% is possible, I used to have than when working in California (when taking into account Obamacare taxes on dividends), but most investors should stay well below 30% marginal tax burden on the Pref's.
@earlyretirementnowcom Got it! Not sure why I thought preferred we're taxed like ordinary income or interest. I'm certainly in 15% bracket for dividends and LTCG.
@earlyretirementnowcom Thanks for this list! How many preferred stocks do you recommend selecting in order to have enough diversification. I'm trying to determine the happy medium between having enough diversification but not having to select every single company on the list.
@mpaziran Well, I have all of them. Most of them are financials, so there is not that much diversification to begin with.
I would normally trade them in lots of 200, i.e., $5,000 chunks. If you want to $50k into this, probably start with 10 lots of 200 each.
@earlyretirementnowcom Makes sense. So I noticed with all of the fixed/floating preferred stocks that once the call date occurs, the yield floats to around LIBOR + 4% or so. If the preferred stock turns to a floating rate and the interest rates are still low, do you plan to just sell the preferred stock and purchase another with a longer call date?
@mpaziran Probably not. If rates are low then they will low everywhere. (or more precisely, the fixed-rate preferreds with higher rates will be very expensive, way above $25 a share)
Hi Ern,
How did preferred stocks and marging held during 2020 crash? TSY was also dropping, right?
Since IB change negative interest on my home currency I do keep some margin in USD. In the long run I don't mind having some USD, but would it be good idea to put then in preferred stocks?
Thanks
@john They went down. Almost as badly as the stock market, but then subsequently recovered again.
All pref's paid all their promised dividends along the way.
Whoa, sorry to hear that you pay to keep money with IB. If you could shift into a USD and even earn 5-6% on the preferreds, that sounds like a good way to hold the margin cash.
Thanks for reply.
I read that you moved put selling margin in TSY/preferreds as to avoid to much market Beta exposure. I struggle to understand how is preferreds beta different from broad market beta?
Yes, IB charge -.75 on CHF for balances over 100k. I do have bit of multi currency portfolio, as being from EU, and use it as margin for SPX put selling. On a good side, in theory, I should be free of capital gain tax, but this is bit grey area as Swiss tax authority has right to label you as professional trader due to derivatives usage and active trading. But they are slow do process tax declaration of few years back.... because they delay to send you bill as they also are clipped by negative interest rates.
@john Oh, there's no difference. I noticed that Muni bonds have some equity exposure too and with my SPX put risk dialed in the way I liked it I thought I can afford to take more risk with my margin cash.
I'm not on IB, but portfolio margin certainly is better. Allows me to but Fri options and let Wed options expire OOM.
I'm in MHD, which has been a dog for last 5 weeks, so going to harvest losses soon. Also have HYMB and will eventually buy back into NZF. Raising rates are not my friend.
@navypack MHD has been a dud for the last 5 years, unfortunately. I owned a few other smaller Blackrock funds that were just recently rolled into the MHD and the performance doesn't look good. But luckily, the bulk of my CEFs is in NZF, NVG, and NMZ. They did OK over the last 5 years.
Yes, I was just forced into MHD from BAF. Going to tax lost harvest (TLH) and get back into NZF after my 31 days are up from an earlier TLH.
I might wait a few days to catch ex-dividend on MHD, if it is close.