IBKR and naked put assignment

[TheGoonior2]

You might want to stress test your portfolio as you may be in for a rude awakening in the event of a drop. You mentioned that you started writing puts several months ago, but we've been in an uptrend since April/May. A cash-secured put is a reasonable trade given that you want to own the underlying you are targeting. However, it seems like you are pretty levered up if you are in a PM account with no free cash. You also mentioned that you are far OTM, but that's sometimes referred to as "picking up pennies/nickles in front of a steamroller". You might want to look at spreads instead of outright nakeds as at least then you have a "defined" downside. I put that in quotes as it's not perfect unless you are trading a cash-secured, European style option. You can still run in to liquidation issues if your short leg is ITM and the long is not. At least with a spread, you can pick your pain level due to a gap down past both strikes.
I trade short term CSP on stuff I want to own, but typically write it as a vertical spread. I include a "garbage" long (usually $0.10 or less) just as a precaution. It eats in to the return, but I can live with that. It also drops my margin requirements down substantially, but I'm RegT not PM.

 

[tonyf]

You might want to stress test your portfolio as you may be in for a rude awakening in the event of a drop. You mentioned that you started writing puts several months ago, but we've been in an uptrend since April/May. A cash-secured put is a reasonable trade given that you want to own the underlying you are targeting. However, it seems like you are pretty levered up if you are in a PM account with no free cash. You also mentioned that you are far OTM, but that's sometimes referred to as "picking up pennies/nickles in front of a steamroller". You might want to look at spreads instead of outright nakeds as at least then you have a "defined" downside. I put that in quotes as it's not perfect unless you are trading a cash-secured, European style option. You can still run in to liquidation issues if your short leg is ITM and the long is not. At least with a spread, you can pick your pain level due to a gap down past both strikes.
I trade short term CSP on stuff I want to own, but typically write it as a vertical spread. I include a "garbage" long (usually $0.10 or less) just as a precaution. It eats in to the return, but I can live with that. It also drops my margin requirements down substantially, but I'm RegT not PM.

Thank you for your thoughts - what if a hypothetical scenario that the underlying price never reaches the strike price?
A naked put becomes like a 0-coupon bond then, right?

My biggest risk is a black swan event where everything is dropped regardless of balance sheet quality...I will then have to close those puts at loss quickly or delta hedge by shorting the underlying

What puts me at rest is that no less than half of my exposure has a DTE of 4 weeks.

 

[FSU]

Also, people that have spreads where one leg is assigned early, typically around a dividend, and risk profile changes. Both create gap risks and smarter brokers sell people out of their positions in anticipation of these events.

There is no gap risk here as you say with an early assignment. The risk is paying out a dividend. The early assignment may create margin issues, but there is no gap risk as the long portion of your spread would cover the risk of the stock position.

 

[lpope]

FSU is correct; I wrote carelessly. There isn't gap risk from early assignment per se. I was thinking of the horror stories where early assignment caused a margin blow out that was resolved with an unmatched position liquidation and created a very different payout scenario than the original position.