RE:Cash deposit or selling stocks to meet margin?Hi Lily,
I'm feeling your pain too, however I am still holding my leveraged positions. They may turn up tonight, perhaps next month, nobody knows.
I normally keep a margin buffer to allow for normal fluctuations, about 5- 10%. The last 2 weeks have exceeded that, as they have done to me several times before on oil's march up.
My long oil, short the general market position, has been productive, but I wish I had bought more general market shorts to balance this last oil drop. It is being dragged down along with gold, bitcoin, bonds, indexes, currency, etc. Everything gets sold off during a downturn, but oil has the best future outlook of them all.
I strongly believe in the bullish oil thesis we are facing, even while taking into consideration the expected economic difficulties we all know are coming, and I will stay the course and hold. This is a journey, with ups and downs. Ships are safe in port, but that is not what ships were designed for. Blah, blah, blah...
In the past, the worst damage to my portfolio has always been selling more that needed to meet margin calls. This is when I questioned my resolve, and allowed emotions to take over fundamentals.
If the market drops, and I must sell something to keep within my margin limits, I still want to maintain my upside exposure when it turns. I sometimes sell the underlying and use the cash to buy the cheap calls. It increases the risk, but you won't miss a big pop the day after an oversold condition returns to normal trend. Remember, buy low, sell high, not the other way around.
Using HELOC cash to fund the margin account is cheaper at TD, even by .2% on the highest borrowed bracket levels. Also, it is deductable for tax purposes.
I may sell off certain positions in my accounts which have no margin at 1:1 to release the most cash, then the 2:1, and lastly the 3:1.
As you exceed your margin limits during the trading day, the account risk managers are tasked with going in and selling stuff in your account to keep you within your margin limits. They can sell whatever they want, and how much they want at their discretion. Try to avoid then having to call you. As this happens mostly during the last hour of trading, I always make that decision for them and have a standing order sitting there at a higher ask, of what I choose to sell and at an amount that will bring me back into compliance. They see the order, and see that I am managing the risk myself. That way if they have to get involved in my account in the final minutes, I have already made the decision, and they execute my limit order by changing it to a market order. Many times I have had that sell order sitting there until close, and it was not sold off by riskmanagers, and often ended up exceeded my margin limit by $40k overnight, then the market bounced back fo rme the next day. Problem solved.
For me, lately, I have been selling some underlying stock to keep within margin, and buying calls such as MEG. Insane that MEG has dropped below $20. It makes about $5M profit per day, pays no tax for years, and will soon be debt free returning 100% cash profit to shareholders.
Using this approach, I was up as high as 390% on my accounts over the last 5 months just shy of an 8 figure profit, however today I am up only 190%. Still a good mid 7 figure cash profit, by any measure.
From everything I read and learn, I feel that near the end of this year will be the big pop in energy stocks, but now we have turmoil and a drop that has surprised traders and all the experts. Fears of a recession have driven down oil prices in the short term, until the market realizes there is simply not enough supply regardless.
The jawboning from Biden's administration has been temporarily effective at lowering oil and oil stocks as a result, but each action leads to higher future energy costs as it does not address problems with structural supply, and actually increases demand. There is really nothing they can do, yet they must be seen as doing something. They are sinking in quicksand, and each movement to free themselves pulls them down, sinking them deeper into the energy crisis quagmire.
We all know how undervalued this sector is, and the lower it goes, makes it a much stronger buy. We are days away from finishing a stellar 22Q2 with insanely high crack spreads and WTI.
Keep in mind that the market can remain irrational longer than you can remain solvent.
So, after years of this, I still sleep at night. Others may not.
Cheers
PS. Amidst all the negativity you are bombarded with in the news, here's a note on the recent oil market action from RBC's Michael Tran:
LiLy2021 wrote: (humming)
Feelings. Nothing more than feelings.
Trying to forget my...feelings of...loss.
Just when I thought I was numb. The feelings are still there. Raw and real as ever when I received a call from an unrecognizable number. "Good morning, Ms. Wilkes. This is a courtesy call from TD Bank. You have until 2 pm today to meet your margin." "I'm in the middle of something very important. Can I do it before the markets close?" "No. The most I can do is 3 pm."
I had a few hours to think about what I should do. Down another 10% today on these oil stocks, for a total of 35%. I still have enough cash to cover this margin, but at this rate of decline, it will soon be depleted. Then I will have no choice but to sell my shares. I am still being offered all kinds of loans and LOCs, but with the rates rising at this pace, no thanks.
I have exited oil twice because there was so much fear lingering on the back of my consciousness. But then, me being me, I could hardly sit still...
I'm going back and re-evaluate all the reasons I decided to go all in (and more) on oil and these reasons are still valid. The fundamentals are still strong; the companies' FCF and valuations are projected on the price of oil being around $60; Mr. Buffet just invested a prodigious sum of money into these oil companies; Dan Payne did not rise to #1 out of 7,900 analysts by "throwing darts"; supply remains tight; oil is crucial to survival and prosperity of our human species etc.
But then the headwinds...I can't shake them off and pretend that they don't exists.
With almost 40% of our capital going into real estate investments, these rate hikes will cause a world of pain to both the homeowners and our economy. It's not the same when I invested. A big detached in Toronto could have been had for 500k, rate fixed at 5.75 and cash flow positive from the get-go. The recent buyers paid a lofty valuation for their house, chose variable rate because they thought it'd stay at that level forever. (I've talked to some and they refuse to believe that the central banks will increase rates to 5%).) They then took out HELOCs as soon as the market went up to invest in equities. Now with rates rising, they are quickly approaching the trigger rate and payments will increase quickly to cover the interest payments. This means more selling off of equities. There won't be much interest in blue chip dividend stocks when they only pay 4% and the interest on these HELOCs are a few percentage higher. The exorbitant costs of living will mean less money to invest.
If you invest on margin, what are you planning to do in this environment?