Brokers who offer Put Spread vehicle also for CashAccts

Discussion in 'Retail Brokers' started by earth_imperator, Jul 28, 2022.

  1. Put Spread Trading also in a CashAcct

    A Put Spread consist of a ShortPut and a LongPut.
    This has many names, incl. Put Vertical Spread.

    Since it's a spread, its P/L diagram is like a "Z", or a vertical mirror if it.
    This means the loss at one of the sides is limited by a straight horizontal cut (capping), and the other side is profit.

    B/c of this protection guarantee, the margin requirement gets very low:
    MarginReq = (ShortStrike - ShortPremium) - (LongStrike - LongPremium)
    or equivalently:
    MarginReq = (ShortStrike - LongStrike) - (ShortPremium - LongPremium)

    Here's a very good demonstration example of this showing the reduced margin requirement of multiple orders of magnitude lesser than compared to the ShortPut alone ($13,290 to just $400 or even lesser, IMO $315 only):

    Unfortunately my broker (TDA) does offer this Put Spread only in MarginAcct, but not in CashAcct :-(
    IMO, there is no reason for not offering it also in CashAccts, since CashAcct is IMO more safe than a MarginAcct. Ie. it's then about the "CashReq" instead of MarginReq.

    Of course in a CashAcct the ShortPut would be a Cash-Secured Put, which is already possible. Of course also LongPut is already possible. But what's not possible is the above said reduction of the cash requirement (as is possible with margin requirement in MarginAcct) when both of these get used to form a spread... :(

    To make a long story short:
    Does any other broker offer Put Spread trading as described above also with CashAcct?

    IMO this is the next concurrency field the brokers should compete with each other, ie. the next hot thing in the retail brokerage industry. The broker who offers this trading vehicle also for CashAcct will surely get many many new traders. Just sayin'.. :)
    Is RobinHood listening?... :)
    Last edited: Jul 28, 2022
  2. TheDawn


    Option by itself is a leveraged product even for buying options. There is no broker on this earth who would offer option trading in a cash account.
  3. You have no clue.
    Of nearly everything :)
  4. TheDawn


    You are just pissed because I call you out on every single bullshit that you choose to spew out on here. LOL Anyway, it's your trading. Good luck finding a broker that would allow you to trade options in cash accounts. LOL
  5. ajacobson


    earth_imperator likes this.
  6. Boom here ya go another cash account where I can trade any naked shit I want in the trading account.

    earth_imperator likes this.
  7. It seems the SROP and CROP requirement has been eliminated ( ):
    FINRA eliminated the requirement that a firm must designate a specific officer or general partner to serve as the Senior Registered Options Principal (SROP), and a specific individual (who may also be the SROP) to serve as the Compliance Registered Options Principal (CROP).
    And do you mean RobinHood already offers the said trading vehicle in its CashAcct? Or do you rather mean the standard possibility (Cash-Secured ShortPut + normal LongPut) excluding the reduced cash requirement for such a spread? There is a very big difference in the collateral required, ie the CashReq! And this exactly is the reason why I'm asking... :)

    I think the right key wording I should look for is "brokers that allow credit spread trading in cash account". Ie. the definition of credit spread is
    A credit spread [...] refer to an options strategy where a high premium option is written and a low premium option is bought on the same underlying security. This provides a credit to the account of the person making the two trades.
    But this definition does not say anything about the risk profile, ie. it lacks this important information. The risk is vastly reduced and can even be defined in advance, so the risk can be fully covered in advance with the calculated (vastly reduced) cash requirement... and IMO even no need for any "maintenance requirement" after the initial requirement!

    Last edited: Jul 29, 2022
  8. @getthatintoya, thx for the info. Are you saying IB's CashAcct type named "Trading Account" does allow the said Put Spread incl. the vastly reduced CashRequirement as shown in the example in the link in the OP ?

    According to my Q&D research, all brokers offer the said Put Spread in their CashAcct types, but I have not seen one yet that also applies the reduction of required collateral (ie. CashReq). I wonder what the reason is, as IMO there should be no problem to offer it.

    For a trader, this makes a very big difference, as the CostBasis changes drastically, meaning less cash requirement, meaning less of bound money, meaning more can be invested, meaning more profit can be made with the same investment (ie. the same account size)...
    Last edited: Jul 29, 2022
  9. zdreg


    How did you come to hold your opinion on option trading in cash accounts?
    I would also like to hear from DAWN even though his post was incorrect.
    Last edited: Jul 29, 2022
  10. I just want to explore and extend the possibilities of a CashAcct :)
    I think the brokers are hiding some facts, favoring their risky MarginAcct product over the less risky CashAcct product. IMO the govt needs to investigate this bad practice of the brokers...

    Option trading in a CashAcct is no problem at all:
    Long option trades in a CashAcct is obviously no problem, since risk is predetermined (one can lose just the premium one pays in advance to be able to open the position).
    But only some of the Short option trades are possible in a CashAcct:
    they must be Covered (Covered Call = ShortCall + LongStock) or CashSecured (CashSecured Put = ShortPut + Cash_for_Strike_as_collateral).

    The problem I see is that the brokers don't play fair: the cash requirement for the said Put Spread should be very low (cf. formula above and the example in the link), but they apply this formula only with their MarginAcct, not with CashAcct...
    This is unfair business practice discriminating CashAcct owners w/o any plausible reason... :(
    Last edited: Jul 29, 2022
    #10     Jul 29, 2022