Can anyone help me understand this?
In my account I have 200 shares of gme and 10 calls with value 1800 and profit about 800.
When I go to the options chain and look at buying far in the money puts, such as 33$ , it's saying my buying power increases 600$. Why? This seems like a way to get extra buying power, but there must be some catch.
What am I missing here.
FYI i wasn't looking to buy the ITM puts, I accidentally clicked on the wrong part of the chain and then I saw the bp increase on the order page.
Buying ITM put increases my buying power?
byu/texmexdaysex inoptions
Posted by texmexdaysex
1 Comment
My guess would be buying put essentially means to hedge your existing shares. This means less money you can possibly lose, thus resulting more buying power.
Example (hypothetical)
If your GME stock price is at $30, typically a maintenance margin is 30%. So every 100 shares you need $900
If you hedge the position using ATM put that costs $5 per contract, it means the maximum lost is $500
Thus the system might give $400 BP back to you