I apologize if I’m being incredibly ignorant, but I haven’t been able to find a straight answer on this. I trade with a cash account on schwab and I don’t really sell cash secured puts as I dislike having my cash tied down for long periods and premiums usually aren’t worth it. I know schwab can let you use money market funds as collateral but I still don’t find this ideal for growth.
So my question is: how would selling puts in a margin account work? Would the line of credit automatically open up when my put gets assigned? Which would then allow me to basically pay no interest if I pay off the margin immediately after assnment? Or do I have to take out the margin loan first and then pay interest on the margin loan until my put expires? Because I want to hold my money in something stable like SCHD and then sell off shares to pay my margin when puts are assigned.
Obviously I do understand the risk that in a market downturn, SCHD could theoretically tank in price along with the asset that I sold a put on which would leave me forced to sell off a lot of shares to pay and ultimately take a hard loss.
Using margin to sell cash secured puts
byu/bluesuitstocks inoptions
Posted by bluesuitstocks
3 Comments
I sell CSPs all the time in my Margin account. I do the same strategy as you looking to do. CSPs only create a Margin loan when the option is exercised or ITM at expiration. So, using margin for CSPs is ok, but as you realize, you be Margin Called if your securities fall hard
You would select Margin instead of Cash, a selection that would become available as soon as margin was made available to your account.
Instead of securing the short put with cash, your margin buying power will be reduced by the strike price x 100.
You will not be charged margin interest unless the short put is assigned and shares are bought on margin. You can pay the new margin debit asap, but you can count on being charged a day of margin interest.
First off a Cash Account is the worst. You should use a Margin Account. If you have less than 25k you have to be careful about the PDT rule , but if you are not day trading that is less of an issue. So if less than 25k find out about the rule.
In a Margin account (even a small one) if you Sell options Calls/Puts, there are tons of decent Stock you can trade options on for about 1k-4k in Buying Power. BP can be Cash, but it could be Assets. I have NO CASH in my account, it is all in SGOV which was paying 5% yearly each month. Schwab gives you 70% of the SGOV value as BP. There is NEVER ANY INTEREST ON SELLING OPTIONS. Will Schwab give you the option level to SELL Options, sure if you make over 100k a year and have a 50k account. No sure that is you (you could lie) then go to Tasty, check the box and you can Sell Options as long as you have the BP.
Why would the Put be assigned, you should close options weeks before expiration . I think your real problem is you are reading all the moronic Posts on Reddit. Most of these people do not have accounts, some have 10k Cash accounts and trade the worst stocks in the world, so they Sell Calls on their $10 Stock, make money on the Call and then the Stock falls to $2 and they cannot figure out why their ‘SAFE” CC went bad.
If the Put is assigned so what ? It does not change your losing Position. Your Position is the same except the trade is over and you had a losing trade. You Buy/Sell the Stock at the current price, and your loss is the difference. Believe me your Buying Power will more than cover your loss neither Schwab or Tasty is taking any chances on you.
Could Schd tank … take off the tinfoil hat. So what. Your account is under 500k so it is covered under SIPC (or maybe Fdic, Fbi, some fed BS).
I would stop reading Reddit if I were you , get over to Tastylive and start learning. Here are some Vids to get you started.
Buying Power
https://ontt.tv/JeGVN Short Puts vs Covered Calls vs Poor Mans Covered Call Jul 9,2024
https://ontt.tv/3jAf4Ba Buying Power Factors Oct 28, 2020
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
https://ontt.tv/hjPGP How Much of BPR is at Risk Jul 5, 2022
Selling Puts
https://ontt.tv/2H8AHdq Selling Puts: A Thorough Analysis Apr 18, 2018
http://ontt.tv/1CkjKU8 Selling Puts Sep 4, 2013 you might have to Search this one
https://ontt.tv/2H5kJ2e Selling Puts into Strength May 7, 2019
https://ontt.tv/37EN8YF Selling Into Strength Jun 18, 2020
http://ontt.tv/2kUfnh4 Selling Puts During Selloffs Oct 17, 2017