Top Dogs: Managing a Large Account

Series 1: Understanding Leverage (3 of 12)

Top Dogs: Managing a Large Account

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

This segment, the third in a twelve part series, explains how leverage, and specifically portfolio margining, can be beneficial for a large size account of $250,000 to $2.5 million and how using derivatives can enhance the portfolio. This should provide some ideas and is not intended as an exact blueprint.

A Portfolio Margin (PM) account is explained. Who it is available to and how it provides margin relief are noted. A table was displayed of the key differences between a standard margin and portfolio margin account. The table showed the minimum account size, the initial margin, the maintenance margin and thow highly correlated and similar types of indexes are treated in both types of accounts.

Another slide listed the key advantages. A table provided an example using the SPY. The table showed a 1 standard deviation short Strangle in the SPY (S&P 500 ETF). The table showed the credit, required margin and max return on capital (ROC) for both a regular margin account (tier 3) and a portfolio margin account.

Two tables were displayed of a portfolio we used last episode that compared the cost of the portfolio using the margin requirements in a traditional margin and portfolio margin account. The portfolio included the /ES (S&P 500), the /TF (Russell 2000), GLD (Gold ETF), TLT (Bond ETF) and EEM (Emerging Markets ETF). The tables showed the underlying, price, size, notional value and margin for both a traditional margin account and a portfolio margin account.

A final table displayed showed the comparison of a $250,000 account put into mutual fund to using a Portfolio Margin account with the same amount of capital. The table showed the notional value, margin requirement, P/L at up 5% and return on capital (ROC).

The series and specifically this segment, makes clear the advantages in taking control of your own financial destiny and not leaving it to others. Mutual funds not only charge management fees but sometimes also special fees upon entering and /or exiting the fund. They cannot use leverage and often cannot use derivatives. Through the knowledge gained in this series individuals have the opportunity to increase their returns while actually decreasing risk.

Watch this segment of “Top Dogs” with Tom Sosnoff and Tony Battista to see the details of how using portfolio margining can give you more leverage, greater flexibility, a higher return on capital (ROC) and a reduction in margin requirements that can enhance your portfolio significantly.

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