Getting assigned put but with not enough cash to purchase

Discussion in 'Options' started by jbperez, Sep 12, 2011.

  1. jbperez


    When I sell a put for a stock or ETF, the maximum margin the brokerage firm (Etrade for example) seems to be holding is 20% of the underlying plus premium.

    Supposing I get assigned and don't have enough cash to purchase the underlying, what would happen?

    Will the brokerage firm automatically sell the underlying immediately and/or can/should I arrange for this to be done?

    Say, I sell 1 contract GLD put @ 170 strike price and the price falls to 168, but I don't have the $17,000 to buy 100 shares GLD, will I get somehow penalized for this, or would I just get $200 ($2 difference) deducted from my account to cover the immediate buy/sell?
  2. daveyc


    as far as i know, if you are selling the put at 170 you are obligated to purchase at that strike and i don't think you would be able to make this trade if you don't have the money in your account to cover the trade. i would consider maybe making a spread trade or sell puts on stock that is at lower prices.
  3. Assignments are made over the weekend after the market closes. If you only had 20% of the cash to buy your broker would most likely sell it at market price at the open on Monday. If it drops so much that 20% wouldn't cover it then the broker would start selling other assets. If still not covered then you might find a For Sale sign on your house or car.
  4. dhpar


    +1 :cool:
  5. donnap


    You got a +1 on this. Wow.

    This is basic options 101.

    Holders of American style options may exercise any time before the options expire given certain time restrictions. Yes, the puts likely wouldn't be exercised unless they are ITM and no TV. Early assignment of puts should also be less likely in a very low interest rate environment, but it is a possibility.

    OP, educate yourself and find out what your broker's margin call policy is and trade accordingly.
  6. Yeah, I was assuming at expiration. Even so, don't early exercises get assigned after market close?
  7. Only sell puts on something you are willing to buy. And when selling puts better to be more conservative and always assume assignment and calculate your margin requirements as if you were long the stock. That way you don't have surprises. Risk management should always be your number one priority.

    Better to be extra conservative.
  8. Cover before expiration?

    Or, ask your broker instead of the internet?
  9. dhpar


    my +1 comment was referring to Eliot's last sentence about OP losing his car and house - which seemed to be fitting given the basic nature of question asked...

    maybe you need a rest.
  10. jbperez


    Ok... so it basically would work like an automatic buy/sell then...?

    At market close, if I get assigned, broker would purchase the underlying automatically (on margin I suppose) and on Monday open, the broker would automatically sell it?

    As long as the price does not move by 20% the option margin would cover the difference...
    #10     Sep 13, 2011