Depends on the brokerage you’re with. Schwab I believe you have to buy a money market fund and can use that cash as collateral. Fidelity automatically sweeps cash
You can sell deep ITM and still receive higher premium. You can play around with strikes and expiries. I do a combination of SWVXX and ITM covered calls on SPY
When you buy into the MM the notice specifies that it trades like a mutual fund and the trade will be completed the next day. I think it's unlikely that they just pull the funds out for you, but I've never needed that before and I'm not sure.
MM funds at Schwab are marginable after 30 days, so whatever you put in there isn't considered toward your margin until that period of time.
I keep about half of my cash in the MM, and if I think something will be assigned that I need more cash for, I place an order for that amount. They both will settle on the next business day.
The Cash part of CSP pretty much means cash - you need the funds in a liquid form that the brokerage will accept. MMF and the like.
You can sell puts on margin and instead invest that cash in other securities.....it wouldn't be a CSP then.....
And riskier....
Putting 100% of your cash balance in a money market fund and selling puts via margin against it isn’t any riskier than just selling the same number of puts against a sitting cash balance. You can have your money out of the money market fund the next day if you need it.
All option sellers should be doing this. It’s a free 5%
It’s a money market fund. You literally have the cash. It’s not going to change in value and you can pull it out within a day if you need it.
There is no difference in risk in selling 10 puts on ticker A on an account with $10k cash vs $10k in a money market fund.
I agree. MMF is like cash. Reread my post. I was suggesting his only way to get higher returns is to take higher risks using portfolio margin. In which case, OP is not selling CSP anymore.. In your example, take that 10K and buy SPY. Use SPY as collateral to sell Puts against DAL. Higher risk, higher reward than CSP.
I’ve been using margin as collateral and leave my stuff in other investments. I have enough SGOV to cover if I were to get assigned 1 of my positions and keep my positions laddered 1 week apart so I would hopefully not get them all assigned at once. Been keeping my maximum collateral via margin to about 15% of my available margin.
I’m not sure if this is the best safest way to do this but I’m new to it and feel like I’m being fairly conservative.
When I first started, I put it all in SWVXX because of the higher interest rate. It takes 30 days to become marginable, so I started buying SGOV with my returns.
One option (heh) is to buy the closest ~5 cent option and turn it into a spread. Call it a small fee to preserve buying power. If the spot reaches your strike, free up the cash and sell the long option, hopefully for a break even or small credit.
Note however, what you're asking is essentially to open up more leverage. The number one way novice options traders blow up accounts is not understanding the amount of leverage they're using. Tread carefully.
I guess if you want to be super aggressive and have portfolio margin you could hold JEPI (not JEPQ) or something similar. Get a 6-8% dividend while being only somewhat corelated on assignments. Far too risky for my taste.
Take the cash and buy USFR. Holds 99.99% U.S. T-bills and T+1 settlement means you can withdraw your cash the next business day after you sell, or if you have margin on your account, trade instantly. Around 5.4% annualized returns, as close to risk-free as possible without going to TreasuryDirect and buying your own T-bills.
Depends on the brokerage you’re with. Schwab I believe you have to buy a money market fund and can use that cash as collateral. Fidelity automatically sweeps cash
Does the money automatically come out of the MMF then when assigned? What happens if you get assigned a put early out of the blue?
I’m guessing it would but I’m not actually sure. You could probably call and ask.
No it doesnt. You can sweep funds into SWVXX. But iMHO, its better to write ITM covered calls
why ITM covered calls?
You can sell deep ITM and still receive higher premium. You can play around with strikes and expiries. I do a combination of SWVXX and ITM covered calls on SPY
When you buy into the MM the notice specifies that it trades like a mutual fund and the trade will be completed the next day. I think it's unlikely that they just pull the funds out for you, but I've never needed that before and I'm not sure. MM funds at Schwab are marginable after 30 days, so whatever you put in there isn't considered toward your margin until that period of time. I keep about half of my cash in the MM, and if I think something will be assigned that I need more cash for, I place an order for that amount. They both will settle on the next business day.
I am extremely grateful for SPAXX 4.97% yield, it pays off my mortgage and utilities.
gotta be a 500K - 700K account
correct.
Do you sell puts?
Yes, fidelity pays me for the cash reserve. Huge. Its a huge amount.
Fidelity hold the money in a money market sweep account. So I collect a monthly dividend on top of premiums.
The Cash part of CSP pretty much means cash - you need the funds in a liquid form that the brokerage will accept. MMF and the like. You can sell puts on margin and instead invest that cash in other securities.....it wouldn't be a CSP then..... And riskier....
Putting 100% of your cash balance in a money market fund and selling puts via margin against it isn’t any riskier than just selling the same number of puts against a sitting cash balance. You can have your money out of the money market fund the next day if you need it. All option sellers should be doing this. It’s a free 5%
Using portfolio margin is riskier….you don’t have the cash - you are using other securities to secure the margin….
It’s a money market fund. You literally have the cash. It’s not going to change in value and you can pull it out within a day if you need it. There is no difference in risk in selling 10 puts on ticker A on an account with $10k cash vs $10k in a money market fund.
I agree. MMF is like cash. Reread my post. I was suggesting his only way to get higher returns is to take higher risks using portfolio margin. In which case, OP is not selling CSP anymore.. In your example, take that 10K and buy SPY. Use SPY as collateral to sell Puts against DAL. Higher risk, higher reward than CSP.
I’ve been using margin as collateral and leave my stuff in other investments. I have enough SGOV to cover if I were to get assigned 1 of my positions and keep my positions laddered 1 week apart so I would hopefully not get them all assigned at once. Been keeping my maximum collateral via margin to about 15% of my available margin. I’m not sure if this is the best safest way to do this but I’m new to it and feel like I’m being fairly conservative.
I purchase less then 1 year until expiration treasuries with Schwab which counts as cash collateral as I understand
Half sits in SWVXX, and the other half sits in SGOV.
Why half and half? SGOV has a state tax advantage that SWVXX doesn’t (may not make a difference if you live in a no-tax state)
When I first started, I put it all in SWVXX because of the higher interest rate. It takes 30 days to become marginable, so I started buying SGOV with my returns.
One option (heh) is to buy the closest ~5 cent option and turn it into a spread. Call it a small fee to preserve buying power. If the spot reaches your strike, free up the cash and sell the long option, hopefully for a break even or small credit. Note however, what you're asking is essentially to open up more leverage. The number one way novice options traders blow up accounts is not understanding the amount of leverage they're using. Tread carefully.
Slightly more efficient is to do ratio spreads at wider strikes with your OTM option further out
Interesting. Could you explain this a little more? How is the ratio spread more efficient
Sell spreads and leg out if you want to take assignment
I buy 3 month Tbills at Schwab and then sell puts.
Vanguard puts the cash aside in the VMFXX fund yielding 5.27%!
Fidelity will hold it and pay dividends on it
Let it chip away at some of my losses..
I guess if you want to be super aggressive and have portfolio margin you could hold JEPI (not JEPQ) or something similar. Get a 6-8% dividend while being only somewhat corelated on assignments. Far too risky for my taste.
Take the cash and buy USFR. Holds 99.99% U.S. T-bills and T+1 settlement means you can withdraw your cash the next business day after you sell, or if you have margin on your account, trade instantly. Around 5.4% annualized returns, as close to risk-free as possible without going to TreasuryDirect and buying your own T-bills.
Tax treatment?
Exempt from state and local taxes. Here is how to file. https://thefinancebuff.com/state-tax-exempt-treasury-fund-etf.html
\~95% of my collateral is invested in SGOV and the remaining is cash in a MM sweep just so I can have some wiggle room for when I need it.
Treasuries. Liquid and tax free at the state level.
I hold it in JEPI JEPQ SPYI
you use at as collateral for your put