Sell put credit?
- Thread starter S2007S
- Start date
Robert Morse
Sponsor
Honestly, these types of questions concern me, as you should have investigated this BEFORE selling the naked put. When you sell the options, the credit appears in your account, but not part of your equity. The unrealized P/L will continue to change your equity from now until you close the trade, or it expires. At that time, you will realize any profit or loss.
Naked put? It's just a basic sell put . I have the collateral to back the trade up. So if I have a $25,000 account Balance and do a sell put for $1000 my equity balance doest not rise to $26000 the second the trade is done???
I see the $1000 profit and rise of my account balance to $26,000 the day it expires if I haven't taken ownership of the stock?
Cash balance increases by $1,000 but equity doesn't change.
Equity is the total value of the account. Cash + positions.
Your naked put would have a value of -$1,000 as that's the cost to close.
Equity value will change daily based upon the change in value of the short put but cash balance will remain the same.
Sounds like you have a cash-secured put. It's still "naked" or "uncovered" but you have the funds to buy the stock if necessary.
Robert Morse
Sponsor
You are assuming you never have to buy it back.
I am assuming yes and the sell puts I take are at levels where if I had to buy it back the markets would have to take a damn nice drop of 10% or even more to do so, not only that I'm short this current etf in my other account so there would be profits on that end where I would cover the short once the long position would be taken due to the sell put hitting thar strike price.
As long as you always have enough cash to buy the underlying stock if you get assigned, i.e. Strike * number of put contracts sold * 100, you are fine.
The premium, i.e. how much you sold your puts for does not become part of your cash until the puts expire worthlessly.
Just remember these two points, you will be OK.
Equity balance changes daily based upon the positions in your account so the $1,000 will show up over a period of time (not all at once) as the option decays in price, assuming it's headed to zero. The value of the option won't suddenly drop to zero so your equity won't suddenly increase by $1,000.
Cash balance will increase immediately after selling.