The Put Seller's Journal

earth_imperator · Jul 21, 2022

Hey @vanzandt you genius, thx, but the question is: if T+1 applies then why does it then after closing the position say "Unsettled cash $0.00". Shouldn't here then be a value greater zero? Can you explain this mystery (IMO)?

Broker is, as said TDA, ie. US, and I'm trading US titles at US exchanges in US currency, and in that example enough cash was available in this cash acct at all times, ie. even before opening the said position.

And FYI: it does not help if you bring other irrelevant pieces to the case and then explain just that. This is no help, but just distraction from the main problem. With due respect, you seem to have a concentration problem, ie. lack of focusing all your attention to the actual real problem under the microscope. But you are not alone in this respect, if that comforts you a little bit

.

vanzandt · Jul 21, 2022

earth_imperator said:
Hey @vanzandt you genius, thx, but the question is: if T+1 applies then why does it then after closing the position say "Unsettled cash $0.00". Shouldn't here then be a value greater zero? Can you explain this mystery (IMO)?

Broker is, as said TDA, ie. US, and I'm trading US titles at US exchanges in US currency, and in that example enough cash was available in this cash acct at all times, ie. even before opening the said position.

And FYI: it does not help if you bring other irrelevant pieces to the case and then explain just that. This is no help, but just distraction from the main problem. With due respect, you seem to have a concentration problem, ie. lack of focusing all your attention to the actual real problem under the microscope. But you are not alone in this respect, if that comforts you a little bit .

No, my problem is your question is unclear.
You said you closed a short position.
I assumed you meant you executed a "buy to cover".
Is that not correct?

Either way, settlement is T +1.
The cash is not settled until 1 day after you close the position.

If your account says "unsettled cash is zero"... Does that not mean all your cash is settled? Whats the problem? Be clearer, what are you trying to do?

earth_imperator · Jul 21, 2022

vanzandt said:
No, my problem is your question is unclear.
You said you closed a short position.
I assumed you meant you executed a "buy to cover".
Is that not correct?

Either way, settlement is T +1.
The cash is not settled until 1 day after you close the position.

If your account says "unsettled cash is zero"... Does that not mean all your cash is settled? Whats the problem? Be clearer, what are you trying to do?

Yes, "Buy to Cover" (or "Buy to Close").
You just don't understand: I'm asking why it's saying "unsettled cash zero" since the position was just closed, then if T+1 has to apply then it should say something different than "unsettled cash zero".
Isn't that obvious & logical? Why don't you understand the problem?
I'm talking of the proceeds from the closing trade, not of any previous ones.

vanzandt · Jul 21, 2022

earth_imperator said:
Yes, "Buy to Cover" (or "Buy to Close").
You just don't understand: I'm asking why it's saying "unsettled cash zero" since the position was just closed, then if T+1 has to apply then it should say something different than "unsettled cash zero".
Isn't that obvious & logical? Why don't you understand the problem?

You sold the put. Your account is credited, but the credit amount is locked up.
You buy it back using the locked up funds plus any extra if its a losing trade.
The trade is done.

All the funds in your account at this point are settled. Hence "unsettled funds = zero".
Trade away. Whats the problem? You didn't sell anything, you bought it back.

vanzandt · Jul 21, 2022

If you do it in the same day though... you will have unsettled funds.
But you said overnight.

earth_imperator · Jul 21, 2022

Hi @vanzandt, I think I slowly begin to grasp. Thx for your latest explanation in your last 2 postings.
So, it is the credit I received that has to settle in T+1. Yep, got it now, now it makes sense! :-)

Btw, it was a profit trade. I'm using a ProfitTarget% for closing it as soon as possible...

earth_imperator · Jul 22, 2022

Avoiding Cash Account Trading Violations

If you plan to trade strictly on a cash basis, there are 3 types of potential violations you should aim to avoid: good faith violation, freeriding violation, and cash liquidation violation.

Summary of the Settlement Rules:

Settlement time for cash transfer to the account is 2 days, called T+2.
Settlement time for stock trade is 2 days, called T+2.
Settlement time for option trade is 1 day, called T+1.

You may open a position with unsettled cash, but
- for a long position: the money required for the purchase must first be settled before the position can be closed.
- for a short position: the money one receives (called credit) at opening must first be settled before the position can be closed.
Otherwise you commit a violation. The trading system does not prevent you from, nor inform you of, making such violations...

That means: a violation mostly occurs if one closes a position before its opening side was settled.
Holding the position >= the settlement time avoids violations (applies only to unsettled cash, not to settled cash).

Just my Q&D interpretation and summary.
For details and examples see this page and this page.

Comments & corrections & improvements welcome.

vanzandt · Jul 22, 2022

earth_imperator said:
- for a short position: the money one receives (called credit) at opening must first be settled before the position can be closed.[/SIZE]
Otherwise you commit a violation. The trading system does not prevent you from, nor inform you of, making such violations...

Thats what I was saying regarding the same day. So if you sell a put, the credit is unsettled until the next day.

vanzandt said:
If you do it in the same day though... you will have unsettled funds.
But you said overnight.

vanzandt · Jul 22, 2022

earth_imperator said:
Comments & corrections & improvements welcome.
[/SIZE]

A good thing to do, is when you start the day, write down the amount of settled cash at the beginning of the day before you do any trades. You can open and close as many trades as you like that day, no PDT, as long as you don't exceed that amount.
Say your settled funds are $10K, you can do 20 round trip trades buying and selling an $5 Apple call or put. And then do the exact same thing the next day.

And... say you do that. Your last trade of the day after you've done those 20 ----- you can still buy a position to hold overnight. For example you could buy all 20 Apple $5 calls for $10K and then hold overnight.

The next day however you will have zero settled funds. If you sell, the $10K is available to open another position, BUT you must hold that one overnight too. If you just close the position and take the day off, the $10K will settle the next day and you can do your 20 round trip trades all over again.

And it works the same way with "sell to open", ie sell a $5 put and buy it back 20X in one day. The next day you can do the same thing because the funds you received selling will be settled in your account.

earth_imperator · Jul 22, 2022

A Hot Tip for Put Sellers:

How to reduce cash requirement (or margin requirement)
for example from $13,290 to just $400 (!) :

"Vertical Spreads: Lower Margin Requirement Hurdle to Target Capital Efficiency"
https://tickertape.tdameritrade.com/trading/vertical-options-spread-lower-margin-requirement-15634
"[...] And Remember the Kicker: Margin Reduction
The original margin requirement for selling a 134-strike cash-secured put is its strike price, less the credit received, times the multiplier, or:
($134 - $1.10) x 100 = $13,290.
The new margin requirement for the short 134/130 put vertical spread is the difference between the strikes x $100, or: (134-130) x $100 = $400.
In this example, turning the cash-secured put into a put vertical spread lowered your potential profit by $25, but reduced your margin requirement by a whopping $12,890 per contract. [...] "

Best useful & practical option trading tip I've ever seen.

Update: IMO the requirement is even just $315 instead of the said $400 (or the original $13,290), b/c the credit one receives will be counted for by the broker's system (here TDA), ie. the formula is then

Code:

Requirement = ((ShortPut.Strike - LongPut.Strike) - (ShortPut.Premium - LongPut.Premium)) x 100
            = ((134             - 130)            - ($1.10            - $0.25))           x 100
            = $315

or alternatively (ie. the same result):

Requirement = ((ShortPut.Strike - ShortPut.Premium) - (LongPut.Strike - LongPut.Premium)) x 100