CashRequirement for CoveredPut trading in a CashAcct (not MarginAcct)

E

earth_imperator

CashRequirement for CoveredPut trading in a CashAcct (not MarginAcct)

Some time ago I had asked the support of the brokerage firm TD about the cash requirement
for Cash Covered Put (aka Cash Secured Put) trading, and they said that
one needs "Strike * 100" cash amount in the account upfront to be able to open 1 contract position.
When I asked whether the credit one receives counts as collateral, they said no.

This to me sounded illogical b/c with CoveredCall the formula for 1 contract (even at TD) is:
CashReqCC = (Stock.Ask - Call.Bid) * 100

And with CoveredPut it should be similar IMO :
CashReqCP = (Strike - Put.Bid) * 100

Has the TD support guy gave me maybe a wrong info?
How is the CashReq for CoveredPut trading at other brokerages?

TIA
 
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Try it and see if it works. I agree that if you put on a covered put, you should be able to use the premium received as collateral since under the worse case, if the stock goes to zero, you still get to keep the premium. I suspect maybe that's just how they coded it and too lazy to modify it. Btw, why not get a margin account?
 
At TastyWorks they write this:
https://support.tastyworks.com/support/solutions/articles/43000435285-cash-secured-put
The buying power requirement for a cash-secured put is the (strike price) × (number of contracts) × (option multiplier). The premium received from the sale of the put can be applied to the initial requirement.

EXAMPLE OF SELLING A CASH-SECURED PUT
Sell to open 6 Mar 11 puts at $0.75 = $0.75 x 6 qty x 100 = $450 credit received

6 x 11 x 100 = $6,600 cash-secured amount

$6,600 - $450 = $6,150 buying power requirement
More...
 
ET180 said:
Try it and see if it works. I agree that if you put on a covered put, you should be able to use the premium received as collateral since under the worse case, if the stock goes to zero, you still get to keep the premium. I suspect maybe that's just how they coded it and too lazy to modify it. Btw, why not get a margin account?
More...

I'm writing software to cover this case for both account types.
I just was curious to know whether TD did it this way b/c maybe there is a reason.
But I can't imagine any, so asking the community.
 
Regarding Covered Call I just discovered this IMO important info at TastyWorks site:
"Please note: If the call is in-the-money, the stock/ETF is treated as if it was valued at the strike price."
More...

Does it mean the CashRequirement for Covered Call is even lower for ITM Calls?
Is this really true? I never saw this anywhere else stated. Can anybody from the field comment on the above statement?
 
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(ctd from prev. posting)
Opening an ITM Covered Call in a CashAcct (not MarginAcct):

Example:
StockPrice = 10, Short Call: Strike = 9, Premium=4 (for DTE=180 and IV about 135)
Ie. using an ITM strike.

Question:
Is "StockPrice - Premium", ie. 10 - 4 = $6, the net cash requirement (excluding commission & fees) for opening this covered call position?
Or is rather the following formula to be used:
"min(StockPrice, Strike) - Premium", ie. min(10, 9) - 4 = 9 - 4 = $5 ?
(Of course these numbers multiplied by 100 for each number of contracts.)
 
I think I finally found the correct answer:

TD Ameritrade Margin Handbook writes similar to the TastyWorks statement quoted above.
It states in para 16 (pg 12) for "Writing a covered call":
The underlying security for the covered call can never be valued higher for margin-requirement purposes than the strike price of the short call.
More...

I conclude that then the correct formula must be this one (in C/C++ parlance):
Code: 
  NetCredit = -min(StockPrice, Strike) + (Strike < StockPrice ? 0.0 : Premium);
or reordered:
  NetCredit = (Strike < StockPrice ? 0.0 : Premium) - min(StockPrice, Strike);
It's usually a negative value, then meaning the absolute of it is the net cash required in the account to be able to open the CC pos.
If it's positive then the credit received is high enough so that no additional cash is required.

Update:
the formula above is perhaps still incorrect (b/c the cash req for ITM gets higher than for ATM and OTM, which is illogical)... Back to the drawing board...
 
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