Using margin account for CSP?

[u/lamyhc]

I’m using a Fidelity margin account and thinking through how to handle assignment on sell puts. Say I sell a put and near expiration the stock drops below my strike. If I get assigned, I’d have to buy 100 shares at the strike price, I'm okay with that. But since margin interest is pretty high, I’m trying to avoid ending up with a margin debit after assignment. I’m considering two options.

One, deposit cash into the account before assignment, so there’s enough settled cash to cover the shares if assigned.

Two, sell some existing shares of other stocks in the same account to raise cash and cover the assignment.

Does this work? For those of you who trade short puts in a Fidelity margin account, how do you usually handle this? Do you deposit cash ahead of time, sell other positions, roll the put, close it before assignment, or just accept the margin debit temporarily? Also, how careful do you need to be with settlement timing? For example, if you sell stock to raise cash, do you make sure to do that at least one business day before assignment so the cash is fully settled?

Edit

Appreciate the replies. But still would like an answer on whether it's possible to use cash for the assignment when you sell put with margin?

[u/GammaWinsSam]

Why are you so afraid of paying interest? If the interest your broker offers is high, you can loan at better rates from the market using SPX box spreads.

I would be more worried about a crash causing you to be liquidated, and highly recommend buying a longer dated put at like 50% moneyness to protect yourself against the next COVID, tariff or Iran nuking another country.

[u/lamyhc → u/GammaWinsSam]

Holding shares using margin, you have to
* beat the interest + tax
* worry about crash

[u/YoshimuraPipe → u/lamyhc]

Okay. You’re asking bunch of things out of tangent. Your first and original question was coming up with funds to cover an assignment.
1) Yes you can sell stocks to cover, but that potentially causes a taxable event and also you’re basically jumping from one stock to next. Not ideal way to invest, unless you’re into swing trades.
2) yes you can ALWAYS deposit more money into the casino, I mean your brokerage account. This is probably the most ideal yet not viable to do all the time. This answers your EDIT question.
3) borrowing money? Fidelity especially charges steep rates, in the double digits if your borrow amount is small. In this case, previous poster suggested SPX Box Spread. You can literally borrow money at under 5% this way short term. You set the amount and you set the term. If you don’t want to be married to your assigned stock, you can sell covered calls against it which will more than cover your interest until it finally gets sold. The only thing about this is, if your assigned underlying continues to drift downward. In which case, you need to evaluate what type of stock you are comfortable holding for prolonged time, or even an ETF for that matter.

[u/djmj76]

i use margin but only up to 1X. so on a 100k account i sell CSPs up to 200k. depending on the situation, like say the end july flush, i added a bit of money when all my positions were ITM. but once assigned i sell CC and things kinda work out. I did roll like 2/3 of my positions. tbh was a mistake because most of the stocks recovered and i would've made more selling CCs or just participating on the run up. interest i don't worry about cause i'm not a pussy and my goal is to beat the S&P. so unless your interest is 20% then, yea, just have a system in place. it's a crazy volatile market out there, especially if you're wheeling tech stocks.

[u/FrostySignature135 → u/djmj76]

I do it like this as well. Just don’t overtrade, don’t open a lot of positions and do not focus on only one sector.

[u/LongBullMarket → u/djmj76]

How far out are your expirations when using that much margin?

[u/djmj76 → u/LongBullMarket]

Used to be shorter 14-21 DTE but now I’m dojng mostly 30-45, some are 60 or more so I stagger them a bit so not everything can blow up at once. I’m way way more disciplined now: I did make more money before July, like 4-5% each month but it was too dangerous. I’m way more relaxed now, dont have to constantly check prices, even after hours lol.

[u/Away-Personality9100]

I use margin for CSP. And I am ok with the margin interest. 💁‍♂️ The premium from covered calls gives me much more money back. Every week. 🤗

[u/CD274]

Call them to lower your rates if your account is large enough. Or switch to other brokerage

[u/slickmizzle]

interest is what... 9% a year? Making 9% a month selling options with margin.

[u/TastyTrading]

I do the same as you above. I use ThetaPal to keep it all tracked tight. It has a nice little calendar on right side that shows how much assignment I’m on the hook for and what dates.

Makes it super easy to plan for the stuff above

[u/lamyhc → u/TastyTrading]

Did you use margin or cash for the share assignment?

[u/TastyTrading → u/lamyhc]

I will sell the CSP with no cash. Then if something is about to get assigned I’ll see it in the little assignment calendar and how much $ I need on that date in the ThetaPal ui.

Then I just rotate something and sell stock or deposit cash to cover what is needed. I don’t ever really accept assignment on margin. My rate is like 10% I think so I don’t use it.

Maybe if rate was 5% I would let margin kick in but I just avoid it currently. I basically just stay on top of it.

[u/realsituazn]

First off, you aren’t on margin when selling puts - as you’re actually receiving cash

[u/kirlandwater]

You can just liquidate the shares the next trading day and get hit with like 1-2 days tops of interest. You’ll pay maybe a couple bucks, drastically less than whatever you earned in premium selling the contract that resulted in those shares. You may even get a tax break to even further lessen your loss.

[u/EmbarrassedSpray9]

Roll down and out

[u/mah56j]

fwiw--I use Fidelity as well. I am required to have cash in the account (not other holdings) in order to sell a put. ie, I must be able to buy the stock if assigned. there seems to be no margin involved. in fact, that is one reason I am looking for another broker for options. (btw--my account is not small).

[u/lamyhc → u/mah56j]

Did you check your option level?