Hey guys I like to do covered calls but I have easier time with rolling and strike choosing when I use puts. So normally I sell "naked" puts (they are not so naked since I do have the cash to cover 70% of the position and the rest in margin). My problem with this strategy is that I have piles of dollars just sitting as cash in my account and I do not like it very much, feels like the money isn't working. Is there a way to do a very very safe short termed investment so I'll collect a little bit of interest on that cash pile which I would need to free by the end of the week? thanks
Could buy dividend stocks. An insurance company sells insurance and buys bonds with the float and profits. Warren Buffett changed the model to sell insurance and buy dividend stocks. Seems to have worked for him!
But then there is a big risk that if I put that money in a stock and then get assigned I won't be able to liquidate my position without a big loss (if the stock declined), wondered if there is something that almost never drops in value but in return yields really low gain (very low risk - very low reward)
Some brokers offer interest on cash positions, if USD, as the rates are not zero anymore. Also, how can you claim the money "is not working"? It is doing work. It is there to support your ongoing short put position, in which you hope can net a return. The cash is doing it's job. What's the difference between debiting cash to buy a position, and selling a call or waiting for dividend or waiting for capital gains, versus having portfolio in cash to support margining for holding a naked put? It's sort of the same thing. Return/Investment. Other than the psychology, there is no difference. People who trade only futures have their accounts 100% in cash. Yet they can be making gains/losses and get 'return'.
It is true, in a classic covered call it will be locked indeed but when I am trading on margin it feels like it can do a bit more (it may be not worthy since I tend to do short term strategies)
They're called US treasuries and a competent broker will even treat them nearly as cash for margin reasons.
For all intents and purposes, there is no difference for me, between debiting cash to buy a position, or to hold cash to support derivatives position. Ultimately you are risking capital to make capital and you use different methods to craft a trading position. There are technical differences. Like tax treatment between covered call vs naked short put. Also, if you are marginning for your long stock position, there may be interest charges. The profit/loss profile is different too, as covered call may allow some upside depending on strike sold while short put is limited upside. Things like that. Ultimately, you're risking money to make money. The maintenance margin will reflect your holding of those positions and its corresponding risk and leverage to your portfolio.