Clearing a covered call

C

CloroxCowboy

This post is related to another in the retail broker forum.

I use MB Trading (clearing firm is Penson), and found out recently that when I write a covered call the premium is being "held aside" by Penson in a separate account until the option is called, expires, or I buy it back. I am new to options, but isn't that premium supposed to be my cash immediately after I sell the call? Through MB I'm not allowed to use the premium to open additional positions and I don't collect interest on that money.

What's the deal? Doesn't this basically negate the attractiveness of writing a covered call?
 
Quote from CloroxCowboy:

This post is related to another in the retail broker forum.

I use MB Trading (clearing firm is Penson), and found out recently that when I write a covered call the premium is being "held aside" by Penson in a separate account until the option is called, expires, or I buy it back. I am new to options, but isn't that premium supposed to be my cash immediately after I sell the call? Through MB I'm not allowed to use the premium to open additional positions and I don't collect interest on that money.

What's the deal? Doesn't this basically negate the attractiveness of writing a covered call?
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They are cheating you. no two ways about it.

You are entitled to interest on the cash.

You are allowed to use that cash to partially finance the stock purchase - or to buy something else. If they prevent you from using that cash for longer than the day you sell the call, they a e cheating you.

Alternative: Sell cash-secured naked puts. Same risk.

Definitely need a new broker.

Mark
 
Quote from CloroxCowboy:

This post is related to another in the retail broker forum.

I use MB Trading (clearing firm is Penson), and found out recently that when I write a covered call the premium is being "held aside" by Penson in a separate account until the option is called, expires, or I buy it back. I am new to options, but isn't that premium supposed to be my cash immediately after I sell the call? Through MB I'm not allowed to use the premium to open additional positions and I don't collect interest on that money.

What's the deal? Doesn't this basically negate the attractiveness of writing a covered call?
More...
It makes no sense that they restrict the CC premium as you describe. That's because all the risk is "covered" by your underlying stock. There is no need to protect the broker from any risk. At least, that's my opinion.

All the brokers I have used add the CC premium to your cash account and pay interest.

Don
 
Thanks for the responses. As new as I am to options, I just couldn't see a clear advantage to writing an option and waiting until expiration to get paid...glad to know my first instinct was correct.

Do you think there's any way to fight this? Is this kind of thing regulated by the SEC, SIPC, etc? I like MB for their low commissions ($1 per contract), but perhaps this little scheme is how they are able to afford it...
 
Send a letter detailing your issue to Joanne Moffic Silver at the CBOE 400 South LaSalle Chicago 60605
Copy MB trading on the letter
 
Thanks. I just spoke with another rep at MB and he said I will see that premium within 1 business day after the sale. That makes more sense, but it's not what the previous rep told me. The second guy said he will send me their official policy documentation.
 
Ok conveniently enough, they don't post that in their online documents...

I also just spoke with rep #3 who agreed with rep #1 and said I will not get the premium or the interest on that premium. He tried to explain it to me in terms of an "escrow" sub account that Penson holds for me...and if the market price of the option goes down they credit that sub account (on paper) and when I finally close the position I'll get paid. Total BS. This can't be legal.

Think I will get in touch with that contact at CBOE and get their take on it.
 
The plot thickens...I spoke with a rep at Penson who seemed knowledgable about the process and he agreed that there should not be any restrictions on the premiums of a covered call. He said this is not their policy. :mad: Now it is my mission in life to get MB Trading to either change their system to allow me to do this the correct way, or to have them acknowledge that it is them, not Penson, who is cheating me.
 
Let me pose a different question:

Can someone please give me the name of a broker (Penson-cleared or otherwise) who does credit your account with a covered call premium immediately, pay you interest on it, AND give you buying power? I may be switching soon...
 
Quote from CloroxCowboy:

Let me pose a different question:

Can someone please give me the name of a broker (Penson-cleared or otherwise) who does credit your account with a covered call premium immediately, pay you interest on it, AND give you buying power? I may be switching soon...
More...

Thinkorswim and they clear with Penson.
 
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