How to calculate risk capital on index credit spreads and iron condor options

Question:   I’m a current autotrtading customer with MCTO.  I have $20,000 of available cash in my account and I’ve set my autotrade rule to allocate $4K per trade.   I see that you recently opened a SPY Dec 108/111 bull put spread, which is a 3 point wide spread.  If I’m correct, this spread should require $300 of maintenance.   Because I’m allocating $4k per trade, I was expecting 13 of the SPY spreads to show up in my account;  however, 14 were openened.  Please explain why I got 14 of these spreads instead of the 13 that I was expecting.

Answer:   The required cash (risk capital) to open a 3 point wide credit spread is the $300 of maintenance required by the broker, minus the premium that we collected when we first opened the spread.  For the SPY Dec 108/111 bull put spread, we brought in about $25 of premium per spread.  Thus, the actual risk capital per spread for this case is $300 – $25 = $275.  To calculate the number of spreads that would be opened in your autotrade account, you would divide your $4000 cash allocated per trade by $275, which equals 14 spreads.

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