I’m having a hard time finding out the answer to this question.
For example you have $10k in an account, 100% invested with $0 in cash.
Then you go and sell a $5 credit spread on xyz stock.. your broker will require $500 margin for this trade. Are you charged margin interest on that $500?
Posted by tsmith026
5 Comments
Not typically on a credit spread, but your mileage may vary depending on the broker.
Edit to add that should you close the trade for anything other than a profit or break even (or let it expire worthless vs closing), you’ll be charged interest until you recoup any losses.
What broker do you have?
You will not be charged margin interest on the $500 because no money has changed hands (other than the premium which was received).
Where will the $500 come from if you have to close the spread at full loss?
Nothing to do with Margin which is used to buy Stock and which might entail interest. It is Buying Power a concept UNKNOWN to Reddit users but very well known to Schwab and Tasty. . You get Buying Power from Cash or assets on a discounted rate. There is NO INTEREST CHARGED, also unknown to many Reddit users.
Actually since Reddit users are so misinformed , why even post here, just write to Tom at tastylive.
A little tutorial from the founders of Tos and Tasty
https://ontt.tv/2CLbOjn Buying Power Factors Oct 28, 2020
Here are some others
https://ontt.tv/2CLbOjn What Affects Buying Power? Nov 14, 2019
https://ontt.tv/UpQO3 BPR and Options Risk Feb 27, 2024
https://ontt.tv/771L1 Key Components of BPR June 15, 2022