Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
naked put means you dont have a short position .
say I short 100 shares of TSLA at $930,and I have a put option on TSLA expiring 2/11/22 ,strike price $925,thats covered put.
In your case,you are talking naked put,you need to review your broker's margin requirement on options.
It is not free,what do you have in your margin account?
If you have 100k in marginable securities and sell 1 put and bring in 100.00 in premium, how much are you getting charged for the collateral requirement? It should be 0 as the margin cash/buying power would be reduced by the requirement but you haven’t borrowed any money or credited a margin debit
Your brokerage company will need to approve the higher level for options, which allows naked calls or puts. Why not just buy the stock you really want, and just sell weekly covered calls? But if this is being done with emergency savings, I wouldn't be doing any of this. Emergency funds are there for a reason, right?
Going long and writing calls requires more cash, and you risk 100% of your investment minus premiums collected.
Your brokerage company will need to approve the higher level for options, which allows naked calls or puts. Why not just buy the stock you really want, and just sell weekly covered calls? But if this is being done with emergency savings, I wouldn't be doing any of this. Emergency funds are there for a reason, right?
I am already eligible to do this. I am asking if others have considered it.
If you can explain to me how I can buy shares today with cash from my paycheck March 15th I'd gladly do that. Emergency funds are there for a reason, to help my spouse sleep well at night. I've consistently over the years used my emergency fund to buy dips. I wiped it out in March of 2020 and then simply replenished it.
The main point I am making is that a person working always has future cash flow they are almost certain to earn that they don't have access to. I believe this is a reasonable way to leverage that a bit.
Quote:
Originally Posted by Lowexpectations
If you have 100k in marginable securities and sell 1 put and bring in 100.00 in premium, how much are you getting charged for the collateral requirement? It should be 0 as the margin cash/buying power would be reduced by the requirement but you haven’t borrowed any money or credited a margin debit
bingo. I just wouldn't have any available margin remaining to "borrow" against.
Yes, but my main point is that in typical accounts if you are cash covered you literally have the cash to write the put today. I won't have it until a future date (near expiry).
What do you mean it's not free. Margin as collateral in a margin eligible account doesn't accrue interest, at least not in my margin eligible brokerage. I understand how to write puts and calls. I've been doing it for over a year. I'm asking if anyone has leveraged the margin as collateral to basically take a "forward" on your income and as a way to squeeze a bit of a return on cash that usually sits in a savings account earning 0.5%. I've done this before where I had out about $20k more on puts than I had cash in my account, so I know I can do it, I'm just wondering if others do it regularly.
I’ve never seen someone tie it to future income or to deferred comp. I have seen people do it regularly. You could take the 20k in “savings” and buy treasuries and depending on maturity would release 95-99% to margin availability as well if you needed the flexibility
Sure, there is no interest paid since you are not borrowing money. There are still commission on option trades, AFAIK. Of course there is always the risk of a margin call in situations like you describe. In a market decline your liability increases and your collateral decreases (assuming long positions).
Do a web search on "Victor Niederhoffer" to see what can happen if write too many naked puts.
I’ve never seen someone tie it to future income or to deferred comp. I have seen people do it regularly. You could take the 20k in “savings” and buy treasuries and depending on maturity would release 95-99% to margin availability as well if you needed the flexibility
But does this make sense to you as a lens to view it through? It seems very straightforward to me, but I wonder if I'm missing something here. It seems most times people write puts and calls simply for premium and the traditional thought (and most data supports this) buy and hold outperforms covered puts and calls, but no one has ever framed it as writing puts on future earnings that you wouldn't be able to use for buy and hold without actually borrowing on margin and paying the interest rate.
I also come at it from a bit of an FI perspective where this leverage could produce ~$6-$8k/yr in premiums and that's a decent chunk of change. I see people on the mustachian site talking about selling tradelines for $5-$6k/yr or constantly moving your savings account around to get a few K. This seems like a much easier solution to get a bit of "side income".
Selling naked puts incurs risk. You say the puts you would write are not "truly" naked because you always have your next paycheck(s) which you judge to be 100% certain. It seems to me you are encumbering your next paycheck -- reserving it to cover your truly naked put. If my interpretation is correct, the cost you incur is classic Opportunity Cost.
What's the worst that can happen?
Consider something catastrophic such as Enron. Imagine it is a few months before Enron went belly up. You decide you'd like to own Enron at a lower price anyway - all based on then publicly available information. You engage in your actually naked put transaction (even though you consider it not "truly" naked because you always have your next paycheck). Then the accounting scandal surfaces and Enron goes belly up.
Of course, the likelihood of you walking into the above scenario is exceedingly low - perhaps vanishingly low, but the risk is definitely not zero.
If you can explain to me how I can buy shares today with cash from my paycheck March 15th I'd gladly do that.
If you're happy buying at today's price but you don't have enough cash yet, just use a bit of margin. I've done this in the past, borrowing tiny amounts (as a percentage of the account equity) that I know will be replenished in a short amount of time with dividends and/or new deposits. IMO, there's no need to resort to writing options for what you want to accomplish. Yes you'll pay a tiny bit of margin interest, but if you're going to have the money in few weeks that interest expense will be a pittance.
Selling naked puts incurs risk. You say the puts you would write are not "truly" naked because you always have your next paycheck(s) which you judge to be 100% certain. It seems to me you are encumbering your next paycheck -- reserving it to cover your truly naked put. If my interpretation is correct, the cost you incur is classic Opportunity Cost.
What's the worst that can happen?
Consider something catastrophic such as Enron. Imagine it is a few months before Enron went belly up. You decide you'd like to own Enron at a lower price anyway - all based on then publicly available information. You engage in your actually naked put transaction (even though you consider it not "truly" naked because you always have your next paycheck). Then the accounting scandal surfaces and Enron goes belly up.
Of course, the likelihood of you walking into the above scenario is exceedingly low - perhaps vanishingly low, but the risk is definitely not zero.
Sure, if that happens to the likes of NVDA, AMD, AAPL, MSFT, etc. I'd say I'm not the only one screwed. I'm not putting all my eggs in one basket. So for me to be truly screwed out of $60k Enron would have to happen to 2-3 of the top stocks in SPY which make up ~10% of everyone's index funds today. I'd say we're approaching zero, but I agree it's not zero.
Quote:
Originally Posted by hikernut
If you're happy buying at today's price but you don't have enough cash yet, just use a bit of margin. I've done this in the past, borrowing tiny amounts (as a percentage of the account equity) that I know will be replenished in a short amount of time with dividends and/or new deposits. IMO, there's no need to resort to writing options for what you want to accomplish. Yes you'll pay a tiny bit of margin interest, but if you're going to have the money in few weeks that interest expense will be a pittance.
I'd have to switch to an entirely new broker to do this. Etrade charges over 5%. I don't care that much about this. I'm not a high frequency trader. I'm talking about writing 4-5 puts per 30-45 days to squeeze an extra ~$8k/yr in income and potentially be able to take advantage of a stock correction of 10-15%.
I'd have to switch to an entirely new broker to do this. Etrade charges over 5%.
You do realize that if your put gets assigned before your paycheck arrives you'll be borrowing from your broker and paying margin interest on that loan. Yes??
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
