His question is if he writes, he is receiving cash, does he have to pay margin interest on the short options?
No if you have cash - of course - no margin interest - I have kept short position open for like 2 months - no margin interest but now I thought instead of just keeping cash - why not earn interest and still write options, but Schwab rep. said - that is not a good idea (I still doubt if he knows what he is talking about)
Thanks so I think thinkorswim rep. is ill informed or deliberately misguiding --- You gave perfect example ...So in your example - $115k option buying power I receive - can I use that to sell options including naked options or short strangle/straddles - and keep the position open for a week or month without paying margin interest? TOS rep. said - If you keep any option position overnight - you will start paying interest from the next day until you cover or it expires --- so he said its not a good idea because you will end up paying more in margin interest than you will earn from t-bill interest
This 115K options BP can be used to sell options (credit strategies) as well without paying interest to broker?
Schwab told me, depending on the size of the account plus other considerations, the cash you received writing naked + cash in the account will have to be between 10% to 20% of the value of the stock or they charge margin interest on the deficits. Cash in MMF does not count as cash. I suspect the % is negotiable (?), because option commission is negotiable.
Either he did not understand your question, or he is misinformed, or you have somehow misunderstood him... We have a retail account at Schwab, and we do not have portfolio margin. We do a lot of credit spreads, i.e., we sell vertical spreads that are established for a net credit. For example, short a 75 call, long an 80 call, same expiration, for a net credit of $1.50. So when you establish the position, you collect $150. But the max loss on that position is $350. We do not need any cash in the account to establish this position. The exposure of $350 can be covered with any type of marginable securities, i.e., stocks, bonds, ETFs and even mutual funds and preferred stock. How much of the value is available to you will vary widely with the different types of securities. Robert Morse explained that for T-bills you get 90%. Obviously going to be lower for stocks and ETFs. T-Bills are not treated as cash, but they can be used to satisfy the margin requirement for an options position. And you can even borrow against them to buy options. Someone is going to say, "Options must be fully paid for." Yes, that's true, and it means that you need cash to buy a long call option. But you can get that cash from a margin loan against stock. "Options must be fully paid for" means that you can't borrow against the value of the option.
Excellent response - Thanks for taking time out - It clear everything - I did not know exposure for short options requirement can also be covered with Stocks, ETF or MMF - again Thanks for clarifying. Many times those customer service people don't know anything and they misguide you.
Can u please send me a direct message to share what is commission for options trading @ Schwab or any other broker you might be using?
It is worth noting that in my example, if that position were to be closed at a loss, e.g., at expiration the stock is at 81, so you take the max loss... In that example, you have to pay out $500 at expiration. You have the $150 cash you collected when you established the position. If you don't have another $350 in cash in the account at settlement, the broker will initiate a margin loan against your stock or ETF or whatever. At that point you are indeed paying margin interest, until you either deposit cash or sell some of the stock.
A spread is like a covered, different from writing naked options. I specifically asked about naked option in a regular margin account, not one with portfolio margin.