This is happening because C2 does not correctly calculate buying power and margin requirements for option spreads. What they do is treat them as separate uncovered positions.
I discussed this problem with Matthew several times over the past 2 years, but it is not a priority for him to fix it.
That’s why I had to discontinue my options trading system on C2.
Hopefully, if enough option system developers complain, Matthew will correct this issue.
Jim
[LINKSYSTEM_61939915]
This is happening because C2 does not correctly calculate buying power and margin requirements for option spreads. What they do is treat them as separate uncovered positions.
I discussed this problem with Matthew several times over the past 2 years, but it is not a priority for him to fix it.
That’s why I had to discontinue my options trading system on C2.
Hopefully, if enough option system developers complain, Matthew will correct this issue.
Jim
[LINKSYSTEM_61939915]
Hi, Ikti:
I think I have a mental block about answering forum posts in which I am convinced beforehand people won’t like the answer.
Well, here goes.
The way C2 calculates margin requirements for complex option positions (read as: more than one simple spread) is not entirely accurate. You are correct in your supposition that we don’t optimize margin requirements across various permutations of legs of spreads and strangles. More accurately, we over-estimate the margin required. In real life, a person trading a system will be able to do so for less margin than C2’s margin engine calculates.
There are two ways we can deal with this problem. One would be to entirely rewrite the C2 options margining engine. As another poster in this thread commented, that is something I have promised to do in the past. In fact, believe it or not, I actually did do it, spending many days programming in solitary, monkish, odorous concentration. I designed, and coded, and tested. Then I flipped on the new software…
… and the entire C2 site promptly melted down.
It turned out that my optimization routines, which searched for optimal margin matching across the search space of all possible legs and spreads, etc., worked great when applied to one trading system. When applied to hundreds it sucked up CPU and didn’t quite work.
So, back to the drawing board on that. As I have promised before, I do intend to get to it eventually, but the reality is that we’re constantly torn between projects, some of which promise larger impact than this one. I know it’s not what you want to hear, but I prefer to be honest about these sorts of things: right now, a big rewrite of the rewrite of the margin engine is somewhere in the Top 10 Projects C2 Needs To Do, but it is not quite at number 1 or 2 or 3 (and three is just about the number of concurrent projects we can work on).
So where does that leave us?
Well, happily, there is an answer. It’s not the most perfect one in the world, and it won’t please you 100%, but it will allow you to offer your option trading system on C2, and attract subscribers, and earn subscriber revenue, and allow the world to keep spinning on its axis.
The answer is this: You can increase your Model Account’s base capital by a large enough amount that you have “extra” cash sitting around which will more than cover the over-estimate of the margin required to hold your positions. Then, you can explain to your potential subscribers in your system description something like this: “Matthew is a dumbass, and the C2 option margin engine over-estimates the amount of margin my butterflies/condors/spreads/insert your answer here, and thus you can actually trade my system in your real account with only $X instead of $Y.” Something like that.
And yes, it’s true this will effectively lower your return on equity stats, but as I said it’s not the perfect answer, just a stop-gap until we can re-work the option margin engine in what I hope will be the medium-term future.
So, if you need to rescale your system to increase its capital base in order to accomplish this, dash off an email to our help desk (help@collective2.com), and reference this post, and me or Alen or Melissa will be able to take care of it.
And, yes, I promise to return to the margin calculation software in the future. It’s really something that has bugging me for a long time.
Matthew
