My Cash and Margin (Patreon)

A VIP Q I will tackle here in the community - not for the outside world.

Short answers to the 3 Q's

1) No

2) Yes - at pico bottoms

3) THIS IS TRICKY. Because I am heavily exposed in Options aka Put Selling - I like to assume worst case scenarios eg for MSTR last bear - if MSTR fell below $10 ($100 pre split) from all the puts I sold it would have wiped me out. I took on a huge risk and we only got to $160 but I was sweating for a time. Now that MSTR is a large part of my margin cushion as is Tesla. So MSTR and TSLA would both need 90% haircuts from here for me to be in danger.

Let me clarify the difference between cash and margin in your brokerage account:

Cash vs. Margin Explained

My cash position is completely separate from my available margin. Think of it this way:

• If my cash is 1 (let's say $100,000), then my margin capacity might be 3-4 times that amount ($300,000-$400,000).

• Cash represents actual money I've deposited, while margin is essentially a line of credit from my broker.

How Margin Works

Margin is directly tied to the current value of my investments:

• Example: If I buy $1,000 worth of stock for $10 per share using $10 of my cash, this creates $990 in margin capacity.

• However, if that stock drops by 50%, my margin capacity would decrease to approximately $500.

Risk Management

This relationship between stock prices and margin capacity is why margin calls happen - when positions lose value, the available margin shrinks accordingly, potentially requiring additional deposits if you've used that margin for other positions.

I never combine the two figures when calculating my cash position, as they represent fundamentally different resources with different risk profiles.