High collateral in cash account.

G

GotherL

Asking this for someone else. Honestly, not sure what's he's talking about.

SeanBatt97Today at 5:41 PM
Hey Gother, quick question! I’m a new investor. I’m mainly interested in the sale of Put/Call Options, and developing a full rounded knowledge before entering/exiting the market. Do you have any tips for avoiding having to keep high collateral in a cash account, for trading options. Does the expiry date effect this? As an example, I clearly have the buying power to execute the opening of the contract for a several Put contracts on my radar, but I’ve had 2 brokers say that I need a large percentage of cash available in the account, as collateral. It seems that each stock i choose, obviously the more risk involved, the more collateral it requires to be held against you, to be the seller. Is there any ways to get around the issue with collateral weaning you out of trades, when you first started trading?
 
Open a Credit Spread - that will reduce the margin required.

PS .... I always thought that you can't trade options in a cash account - you need a margin account to trade options.
 
I don't know why he thinks he has, or would want, a cash account. Most brokers require a margin account for option trading. With some brokers you can do covered calls or long calls in a cash account.

But it sounds like he's talking about selling naked calls and puts, and no broker is going to allow that in a cash account. Some brokers might allow the sale of cash-secured puts in a cash account. He may have gotten an "answer" from a broker that was applicable specifically to cash-secured puts, and he somehow thinks it is also applicable to naked calls...

I dunno. It almost sounds like he does not fully grasp the unlimited risk of naked calls, and the huge downside risk on short puts.

BMK
 
Well, simply a "New Investor" and "Interested in Selling Puts/Calls" don't mix well together.

For the specific question of minimizing the required cash collateral, no there is no way around it for sure and yes, it must be a margin account (With the exception of the very few situations mentioned by BMK, again depending on the broker).
 
It’s also unclear what he means by high cash amount. Does he consider 20percent of the notional high? Or is he trading GME (where the req could be 300percent)
 
BMK said:
I don't know why he thinks he has, or would want, a cash account. Most brokers require a margin account for option trading. With some brokers you can do covered calls or long calls in a cash account.

But it sounds like he's talking about selling naked calls and puts, and no broker is going to allow that in a cash account. Some brokers might allow the sale of cash-secured puts in a cash account. He may have gotten an "answer" from a broker that was applicable specifically to cash-secured puts, and he somehow thinks it is also applicable to naked calls...

I dunno. It almost sounds like he does not fully grasp the unlimited risk of naked calls, and the huge downside risk on short puts.

BMK
More...
%%
Most likely 50% right.
Cash account could help him much more than selling puts. EVEN the most safe of derivatives/a home mortgage is not a good idea all the time.......................................................................................................................MY remarks dont apply to GME but i have not looked a that one today or yesterday........
 
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