On a cash secured Put where margin requirements have already been met; what happens when the stock trades below my strike price or margin+premium threshold?
Ex) OTM Put sold at $97 with a strike at $95(margin threshold) shoots down to $94 or further.
Am I on the hook for the dollar per share difference between the strike price & the stock price once the strike price is exceeded & the options contract exercised?
If I am responsible but do not have the funds beyond the funds required for the initial secured margin, then what occurs?
Basically what happens if the price exceeded secured margin?
Posted by Key-Opportunity-3379
5 Comments
The firm will sell some of your stocks.
If the strike of your CSP is $95 and the actual price at expiration (if you let it go & don’t buy to close before then) is $94. You will be paying $9500 for 100 shares & they will be worth $9400, so unrealized loss of $100.
But that stock could shoot up to $100 the next day & you’ll have $500 unrealized gain.
If you don’t have 9500 of cash in your account & instead are using margin, you will be charged interest on what you are borrowing from your broker until you deposit that money owed (plus the interest).
It’s not really a CASH secured put if you don’t have the $$$$ in your account as cash. Ha
You just end up with 100 shares at 94 instead of 95. But the premium should cover that loss. So you pretty much did nothing.
Let’s unwind this question.
A Cash Secured Put: CSP means you have the full amount of cash in the account to purchase the shares should you be assigned. This may include cash and include a margin loan.
If it is a true CSP then the account has enough cash and margin loan amount on hand and there is on issue if the stock price drops. If the Put is assigned then the account pays for the shares.
Selling a Naked Put would require margin buying power that is a percentage of the total ticker cost to open. The margin BP can grow larger if the stock moves down and the buying power increased.
If your account cannot handle the additional BP requirements then the broker may send a Margin Call advising you to deposit funds or sell some assets in the account, or they may start liquating positions in the account until the balance is brought above zero. Some brokers are more liberal than others in how long they allow before taking action.
Based on your post it seems you are trading Naked Puts and not Cash Secured Puts so watch your margin closely to manage if needed.
are you auth to trade naked puts? If not, your order won’t go through.