Just a hypothetical question Lets say I sell 568 put and premium collected is 15$ is put and at expiry it goes to 565 - it is cash settled so How much I would loose ?
Thanks I wanted to confirm (its 285$ btw) - now same question for spy - I think spy is not cash settled so if I sell put spy option and becomes in the money - I will get 100 qty of spy etf in my account ? and for that I need $56800 in my account cash ? I guess so but how much collateral I need to sell spy put at 568 strike
Yes I fixed that thx. You can always just use a pnl chart like on https://optioncreator.com/ Yes you will get assigned shares and put in a margin call if you don't have the funds. You also have the risk of early assignment. Some brokers will close any positions in the money at exp that don't have the funds to cover. This can also happen with ITM spreads that get pinned between strikes.
I tried placing an order (just simulated) and I chose spy put credit spread with only 1 point difference - 565 put sell and 564 buy put - and when I checked my balance it showed fidelity wants full amount of possible loss ie. - -$56,460.00 buying power as collateral (i.e. buying power can reduce for this amount ) but actual loss is can not be more than 100$ - so is this same with all brokers or just fidelity?
Your actual loss is unlimited because if price expires @564.50 you will get assigned 100 spy shares at 565, and your long 564 put will expire worthless, so you are fully exposed until you can sell the shares to cover your margin call when the market opens Monday.
Well that's the way the broker sees it because they are requiring full margin...the position is undefined risk if you want to split hairs.
Well not all brokers see it at total loss/undefined risk - I tried the same trade in tastytrade and buying power effect is shown less than $100
Selling premium is their wheelhouse. Although there was a topic posted about them regarding risk. https://www.elitetrader.com/et/threads/tastytrade-has-set-my-account-to-closing-only.379000/