Lesson Overview

Reducing Margin Requirements

With larger accounts you'll want to trade slightly more undefined risk trades. These give us the biggest P&L at the end of the year but of course tie up a lot more capital in margin.

Today we'll talk about reducing the margin exposure on selected strategies. This helps not only reduce overall portfolio risk but increase our return on capital which can help dramatically with our overall profit.

More Discussion

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  • Marvin

    Hey Kirk. You mentioned you decrease margin use but also decrease credit taken in by about 10%. Do you recommend buying protection at a strike price that would yield a similar reduction in credit? (In this case the protection was bought at 25 strikes away from the short options. Or should we target the protective legs at that strike price?)

    • Depends on your risk tolerance and account balance. I think generally the more credit you can take in the better but if that means going over your per trade allocation, then I say scale back.

  • AJ

    Super video! Very helpful for converting trades from undefined to defined risk. Thank you!

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