What if I was trading naked options purely for the profit of the premium, but didn't have the capital in my trading account to fulfill the contract if the buyer chose to exercise his option. In the past when I was younger(and less educated) I would sell options for the profit of the premium, but never considered the amount of money I would have to cough up if the buyer chose to exercise the option. And even If he did exercise the option, I wouldn't be able to pay for the shares anyways due to not having enough capital to say buy 100 shares at $250. Considering I couldn't afford to buy the shares. How would the buyer acquire the shares and what would be the consequence on my end. That being said on call options i've sold for the premium I have made 100 % plus returns. Long story short I hope you guys can clear for me If they is a way to ensure I never have to buy shares, and can use sell options purely for the profit made of the premium.( considering its significantly more than exercise the option and then selling the shares) Hope someone can help me God bless!
I would call your broker and ask them; if I'm not mistaken, they have some discretion in such situations (at least they used to). In any event, it's probably not a good situation to end up in, unless you've got a margin account and it falls well within the margin limits.
You could be in deep trouble: http://www.elitetrader.com/et/index...-on-an-ib-ira-account-need-suggestions.51251/
I suppose it's like owing anyone else money. The broker can take you to court, garnish your wages, etc. Why don't you trade European style indexes? But remember that 1987 could repeat itself, so you need at least enough capital to cover that.