AquaY
Member
I inherited an IRA at Schwab and about to liquidate the Mutual funds and start trading options in it.
I believe I need to be level 2 and ask for margin to use unsettled funds?
Here's Schwabs info on Margin.
Page 13 is Options
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Wiki Selling TSLA Options - Be the House
- Thread starter adiggs
- Start date
I believe I need to be level 2 and ask for margin to use unsettled funds?
Here's Schwabs info on Margin.
Page 13 is Options
I’m hoping that @adiggs provides his usual verbose response. I’m also very interested in the answers because I just opened a taxable account at Fidelity to try out selling BPS/IC. Requested level 3, but only granted level 1 so far (probably since I haven’t funded the account yet). In my mind, more margin must be required than just 100x spread difference. If you sell 585/685 BPS, go to a remote island and do nothing, and the SP closes at 600, you must spend $60,000 and the +p585 expired worthless. How can that not require more margin? In my case, initially funding the account with $20K, I’m hoping to start small, probably only sell one BPS, maybe two. With no other assets/stock, will it be possible?
Edit: watching the SP action for the past 2-3 weeks, SOMETHING is really different. I’m still pushing my -c750 from weeks ago (now up to -c800 11/05). I definitely like the price action, but it just makes it tough for me to keep rolling. Might have to accept assignment and start selling puts.
I was told Fidelity has a minimum $10K account requirement for options trading, so you'll have to xfer money there and try again.
On a side note, I mentioned a few weeks back that Fidelity wouldn't let me trade spreads (level 2+) in my Inherited IRA. After asking a bit more, they said it is just their restriction, and it only applies to that type of IRA, none others. My Etrade rep says they will have no problem giving me level 3 trading if I transfer the account over, so I'll probably do that soon. I was looking at other brokers, but I think having more than 2 trading platforms will be too complicated.
I’m hoping that @adiggs provides his usual verbose response. I’m also very interested in the answers because I just opened a taxable account at Fidelity to try out selling BPS/IC. Requested level 3, but only granted level 1 so far (probably since I haven’t funded the account yet
Edit: watching the SP action for the past 2-3 weeks, SOMETHING is really different. I’m still pushing my -c750 from weeks ago (now up to -c800 11/05). I definitely like the price action, but it just makes it tough for me to keep rolling. Might have to accept assignment and start selling puts.
For the BPS margin in an IRA type account, the margin is easy to calculate - 100* spread width per contract. So @mongo example - that's an $85 width and thus $8500 margin per contract. If you're doing 100 of those contracts then you'll need $850k in margin. What I actually see in my IRA accounts is that this 'margin' shows up as a Pending Transaction. So if I had $1M cash in that account and did this trade, then my cash would decrease by $850k (down to $150k) and my account would get a new line "Pending Transaction" for $850k. That line will stay there until the trade is closed later. That Pending Transaction line will also start with the premium received on open - that'll take 1 or 2 days and turn into incremental cash on the Cash line, leaving the $850k as a Pending Transaction.
In my brokerage account where I have actual margin, I do the math the same way. Even if my broker (Fidelity) would enable me to do that $850k transaction using (for example) $500k in margin, I would still mentally set aside the whole $850k (cash). My rationale is that I'm already getting a lot of leverage (as much as I want in fact) within the BPS - I don't need my broker extending a bit more. I haven't put any effort into selling BPS using margin on TSLA shares - somebody else will need to address that.
The issue that @ReddyLeaf identified is a real one. It doesn't change the margin requirement but it does illustrate a case in which you can dig a really deep hole for oneself. These spreads need more attention than buy and hold shares or purchasing long dated calls. I don't know the mechanics on what the broker would do in this circumstance. My guess is that over that weekend the 685 put would be assigned and you'd buy 100*# of contracts worth of shares and pay 100*# contracts*$685 for them. Of course in this example you've got nothing like that level of cash so you'd also have a margin call that is large enough I would expect your broker to sell all of those shares first thing on Monday, and you just get to hope that the open is higher than $685.
The lesson that I take away - don't take a planned absence with BPS open. Period, full stop. The other lesson that I take away - I would at least like my wife to know enough to close up our BPS should the need arise. More generally having a backup plan if possible that isn't dependent on oneself to close already open positions.
Starting with just enough to do 1 or 2 contracts to learn the ropes seems like a good idea —> build the balance and grow the #contracts as you gain understanding. Always keep in mind with the CC rolling, that every $10 roll gains you $1000 in capital gains/contract even if you get little premium credit that week.I’m hoping that @adiggs provides his usual verbose response. I’m also very interested in the answers because I just opened a taxable account at Fidelity to try out selling BPS/IC. Requested level 3, but only granted level 1 so far (probably since I haven’t funded the account yet
Edit: watching the SP action for the past 2-3 weeks, SOMETHING is really different. I’m still pushing my -c750 from weeks ago (now up to -c800 11/05). I definitely like the price action, but it just makes it tough for me to keep rolling. Might have to accept assignment and start selling puts.
IRA 'margin' to make use of unsettled funds is how it works at Fidelity.
With Fidelity in my retirement accounts, I needed Level 2 with Spreads Trading to be able to sell these spreads we're having such success with. Without the Spreads Trading privilege I was restricted to covered calls and cash secured puts.
Small enough that you can afford a small loss without worry, large enough that it keeps your attention. The work for 1 contract or 100 is the same, but the emotions are very different. A small position is as much about the emotions as it is the mechanics.
To get started, especially if you have experience with cash secured puts (or margin backed puts), I'm a fan of starting with a particularly wide spread width. I like $200 wide spreads at this point - the observation is that the wider the spread, the more that the overall position behaves like a short put (cash or margin backed). You can still do a particularly aggressive spread in order to create an ITM / rolling for time circumstance if/when that's desired.
As the spread width gets smaller and smaller, then the spread behavior shifts away from short put behavior, and towards spread-like behavior where the premium collected up front doesn't get earned until very close to expiration. What's going on here is that the long and short puts have a close enough strike (let's say $20 width to put a number to it) that their value moves together, and its only near expiration that the time value of the spread finally melts away. This is a reason why I like the $200 wide spread to start - many of us already have experience with short puts. The wide spread lets us make use of that existing knowledge and experience.
alterac000
Member
My experience in my Roth (TDA) is when selling BPS you *must* have the cash to back the trade. TDA will not let you submit the order without it. If you use think or swim it will calculate this amount for you when you try to place the trade, and once submitted will automatically reserve that amount of cash backing minus whatever premium you net. Once the order goes through the cash remains unusable until you close the position since TDA is holding it for the worst case scenario (Max loss).
Be a little careful to always have some cash for Roth specifically available beyond this amount that is reserved - for adjusting positions (rolling, closing, some Jedi strat that Yoona and others come up with), dealing with sp going against you, etc. Same principles as reserving margin in a margin account.
I am still worried about the scenario discussed. When the share price is between the put sold and bought. My thought is that the put bought will loose value much faster than the put sold and you will get stuck with spending 70k to exercice the put
This has been discussed here extensively. Basically you want to adjust the position when your sold leg hits itm, or even earlier. Roll out and down to better strikes. If you have a wide spread.
With a really tight spread, you may just have to take the loss - but it will be a limited loss by design.
The best I additional info I have is to do some reading outside of the forum here. You're looking for vertical spreads in general, selling a put vertical spread (vs. buying); stuff like that. The key idea here is that you'll resolve the spread prior to the end of the trading day on the expiration date. And early assignment on the short put won't happen unless it gets so deeply ITM that it has no time value remaining. In which case the long put will be gaining value and offsetting the loss in value of the short put, with it balancing out at the spread width size of loss.
If both are ITM at expiration then they'll offset each other. If the share price is somewhere in between then the loss is less than the spread width and you'll pay that prior to end of trading on expiration day (in order to close the position).
10/22/21 700/750-900/950 $4.25/7.45-$1.66/0.39=$440, $5000 margin (price was from Thursday I think). After Friday’s close, it might be a good idea to move this one up a bit, maybe $20-$30. My taxable account won’t be funded for another day or so, so not worried about really trading this until after earnings. Anyway here’s this week’s graph, definitely jumped up, but I’m still expecting a leveling off non a week or so.
bkp_duke
Well-Known Member
There are various things you can do with a Beneficiary IRA only if it came from a spouse, not someone else, and I think this is one of those. Just investigated if Roth Conversion of a BenIRA is allowed, and it has the same treatment. Check Fidelity website to be sure though.
Thank you for all the explanation. Hopefully I can pay it back at some point. I will put on a cheap BPS on monday in order to learn by doing!
I don't really see any advantage of the SS over BPS or IC. I think you could sell 6 ICs with the same short strikes of calls and puts and 50 spread and make much more in premium. The premium on each IC contract will be smaller than the SS, but you can open 6 of them so higher gain. Am I missing something?
Hey, no I get no margin from positions at all, I have zero margin with my broker
On the stock price closing between long and short puts without you acting… if you notice shortly after Friday close, you would always have the option to execute the long put, right? So let’s say it’s a 600/700 and SP ends the week at $650. Max Loss is $10k. When the 700 gets executed, you are $70k in the hole but have 100 more shares. If you waited until Monday and the opening price was similar, you could sell the new shares for ~$65k for a total $5k loss (and I assume a tax loss, if relevant).
But let’s say the stock price plummeted Friday, was down more initially in after hours, and you fear a gap down to below $600 for Monday. You could instruct your broker to execute your $600 put and force the seller to pay you $60k for 100 shares, thus limiting your loss to the max $10k loss.
That assumes you notice in time to put in the instruction to execute. If it comes to your attention on Sunday, I guess you get what you get. Hopefully your broker would notify you the instant the other party executes theirs, though.
We had a post recently about someone‘s broker forcing a transaction at 3:45 Friday — I wonder if there’s a chance they auto-execute your long put at that time to limit the loss?
Bottom line there are many reasons to pay close attention and close the spread for a loss manually (or roll it or whatever) before market close, but I think there could still be limited options when surprised.
But let’s say the stock price plummeted Friday, was down more initially in after hours, and you fear a gap down to below $600 for Monday. You could instruct your broker to execute your $600 put and force the seller to pay you $60k for 100 shares, thus limiting your loss to the max $10k loss.
That assumes you notice in time to put in the instruction to execute. If it comes to your attention on Sunday, I guess you get what you get. Hopefully your broker would notify you the instant the other party executes theirs, though.
We had a post recently about someone‘s broker forcing a transaction at 3:45 Friday — I wonder if there’s a chance they auto-execute your long put at that time to limit the loss?
Bottom line there are many reasons to pay close attention and close the spread for a loss manually (or roll it or whatever) before market close, but I think there could still be limited options when surprised.
A few folks here have mentioned about the inconvenience on Fidelity where we have to enter the closing trade as individual legs. So far, that is how I have been doing this. A little annoying since it means we have to enter the correct information, the strike price, expiration date etc. Well, yesterday I discovered a feature on the Fidelity account that I had not tried before and allows me to place a closing trade for the entire spread. Now, you folks may have known about this already and I may be only one entering trades the hard way all this time - In that case, feel free to have a laugh at my expense.
Anyways, when you open the "positions" tab on any of your portfolio accounts, there is a small link underneath that says "option summary". When you click that a new tab opens with all the underlying positions and options listed. Uncheck the "show unpaired positions" on the top and viola! All the spreads appear perfectly matched with the long and short legs together! None of the weird pairings with some of the long puts being defined as protective puts and short positions shown as Naked puts. It shows exactly how much margin is being used for the spread, the cost basis, current profit on the spread etc. Further, if you click on the tiny down arrow next to the credit spread, you can choose to close the entire position and a trade ticket opens up already populated correctly!
(Well now only if they would allow us to analyze this spread by exporting directly to P/L tab, that would be hugely convenient).
Here are screenshots.
Maybe the desktop app Active Trader Pro already does this, but I don't use it because it is glitchy and useless on my Mac. This was so convenient to set up GTC closing orders for these positions via the web based tools. I thought I would share incase there are some people like me who are not aware of this feature.
Anyways, when you open the "positions" tab on any of your portfolio accounts, there is a small link underneath that says "option summary". When you click that a new tab opens with all the underlying positions and options listed. Uncheck the "show unpaired positions" on the top and viola! All the spreads appear perfectly matched with the long and short legs together! None of the weird pairings with some of the long puts being defined as protective puts and short positions shown as Naked puts. It shows exactly how much margin is being used for the spread, the cost basis, current profit on the spread etc. Further, if you click on the tiny down arrow next to the credit spread, you can choose to close the entire position and a trade ticket opens up already populated correctly!
(Well now only if they would allow us to analyze this spread by exporting directly to P/L tab, that would be hugely convenient).
Here are screenshots.
Maybe the desktop app Active Trader Pro already does this, but I don't use it because it is glitchy and useless on my Mac. This was so convenient to set up GTC closing orders for these positions via the web based tools. I thought I would share incase there are some people like me who are not aware of this feature.
AquaY
Member
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