Credit Spread $148,000 MARGIN CALL (This could happen to you!)

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  • เผยแพร่เมื่อ 18 ต.ค. 2024

ความคิดเห็น • 107

  • @TheFinancialMinutes
    @TheFinancialMinutes  2 ปีที่แล้ว +1

    🤝 Join the conversation in the free Discord
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    • @dickwhippin
      @dickwhippin 2 ปีที่แล้ว

      Hi I'm watching you're old videos and trying to learn about options. Been buying and selling stocks for 3 years but want to do options next. I'm trying to understand your trade in this video. From what I gather your trade exposed you to a potential short sell of 400 shares at 275 for 110,000. That was assigned. In order to cover that you have to exercise a 400 share purchase at 280 for 112,000 on margin while currently owing the broker 110,000. So it seems like in order to be 100% safe with no margin worries while placing the initial trade you would need an account with 222,000 margin. Is that correct or am I seeing it wrong?

  • @ZeroToHeroInvesting
    @ZeroToHeroInvesting 2 ปีที่แล้ว +10

    On a moree emotional note, I'm happy you got this resolved and didn't have TOO serious of a freakout to this

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว

      Ya this would have been scary as a newer trader, glad I can pass my knowledge down!

  • @GhostRS_
    @GhostRS_ 2 ปีที่แล้ว +19

    Just happened to me... thank you for this video, life saver. Actually had a heart attack. Waiting for the scary numbers to go away...

  • @victorvictor2754
    @victorvictor2754 2 ปีที่แล้ว +12

    Or, trade SPX options which is European option: no early assignment risk.

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +2

      Very true no early assignment on Euro style options

    • @chimchu3232
      @chimchu3232 ปีที่แล้ว

      Great to know, thank you

  • @raztube90
    @raztube90 2 ปีที่แล้ว +5

    Hey man can you please make a video on rolling the spreads? Dos and don’t and tips and tricks?thanks a lot.

  • @MichaelDavis-cs3hs
    @MichaelDavis-cs3hs ปีที่แล้ว +3

    This is why I’m scared as heck to trade options, especially 0DTE spy options. I’m scared of having an option contract get assigned that I can’t even afford to cover.

    • @TheFinancialMinutes
      @TheFinancialMinutes  ปีที่แล้ว +3

      You can always cover by exercising the option you bought before expiration

    • @michixlol
      @michixlol ปีที่แล้ว

      You could still do the wheel. Nothing wrong with that. No margin required for this.

    • @jaxoncrow6918
      @jaxoncrow6918 หลายเดือนก่อน

      @@michixlolHi, i know this was a year ago, but do you mind elaborating? If you get assigned shares you can’t afford to cover because you didn’t close out early, how would you do the wheel strategy from there?

    • @michixlol
      @michixlol หลายเดือนก่อน

      @@jaxoncrow6918 it would be better in the first place to not sell options you can't cover, only sell put options you can afford to buy, without margin. Then if you get assigned and have the stocks or the etf or something you sell calls.

  • @fivemethoxy
    @fivemethoxy 3 หลายเดือนก่อน +1

    Lol you just excersize the other leg of the spread 😂

  • @theevilgoat3263
    @theevilgoat3263 2 ปีที่แล้ว +5

    Hey Greg. i have a bunch of questions...(sorry and thanks for your time again!).
    1. Just to clarify - In your case you lost around 36,000 because your debit was 148,000 (short leg) and your credit was 112,000 (long leg) am i right?
    2. since you bought ITM options you would be safe if you get assigned because you can always exercise your long leg to mitigate costs, correct? BUT if i were to buy OTM options and (Scenario: stock is at 100$. I sold a Call at 110$. I buy a 115 call to create a call credit spread) stock is now trading at 113$ at expiration, my short leg is ITM but my long leg is OTM in this case i would be doomed because i would have to lay out money on that assignment and not be receiving any credit from my call that i bought at 115$!!. My only answer i can think of is that you can sell that call you bought at a higher price since the stock price went up which can cover some of the cost incurred from your assignment...i dont know if im right though.
    I hope this made sense...Thanks for your time Greg. Youre method of teaching is amazing!

    • @cole6167
      @cole6167 ปีที่แล้ว +2

      On #1 - his loss on the 4 spreads appears to be a few hundred dollars, not $36k. I'll show the profit-and-loss math first and then why that correct value looks so different from the calculation using the $148k margin call.
      His account showed MSFT spreads opened on 2 different dates, but only details for one, so here's an example for that one trade:
      - sell 2 ITM 275/280 call vertical spreads each @ $4.50/share (MSFT around $302/share at open) -> $900 credit (2 * $450)
      - max loss at expiration is $100: 2 spread * ($5/sh max at expiration [= 280 strike - 275 strike] - $4.50 credit at open) * 100 sh/spread
      - get assigned on 2 * 275 calls -> sell 200 shares @ $275.00/sh, receive $55k cash
      - exercise 2 * 280 calls -> buy 200 shares @ $280/sh, pay $56k cash
      - total cash flow (2 contracts): + $900 option spread credit + $55k cash on assignment sale - $56k cash on exercise buy = - $100 (the max loss identified above)
      So why is the PnL on all 4 contracts not $38k ($148k margin call - $110k stock sale)? The margin call amount is much different than the liquidating value of the positions, so you don't compute the PnL from the margin requirement, you use the liquidation value of the positions. That means the actual PnL (for 4 contracts) is just a few hundred dollars (shown above for 2 contracts). So then how did the margin call blow out to $148k for a $110k sale?
      ...Reg-T short stock margin requirement: $165k
      - He received $110k cash from the sale of 400 shares MSFT, presumably resulting in an open short position
      - Reg-T requires 150% of the sale price, so 4 contracts * $275/share strike sales price * 100 sh/contract ($110k) * 150% margin rate = $165k margin requirement
      - I don't think there's not enough info to know exactly how the margin call nets to $148k...we'd need to consider the margin for the outstanding long calls, the broker's timing of margin calculations, other unencumbered cash in the account, etc
      - ...This margin requirement does not consider a T+0 mark-to-market which would increase the mark from $275/sh to $336.07/sh at market close on Nov 15 (+ $60k margin requirement!).
      Anyway, point is, the profit and loss is not based on the $148k margin requirement but rather on the net liquidating value of the positions (which you can see is much different when there's a 150% requirement involved).
      As long as you take action on the margin call by closing that short position (he showed one way, but there are a ton of ways to do it), you should greatly improve the margin requirement in this situation because of the 150% requirement on a relatively high-nominal-value stock.
      Reference on Reg-T margin requirement:
      - www.investopedia.com/ask/answers/05/shortmarginrequirements.asp

    • @cole6167
      @cole6167 ปีที่แล้ว +1

      #2 is a good question. The simplest answer may be just to buy back the shares at market and sell the long 115 call. Your PnL is driven heavily by the credit at open and how much the stock falls (or rises) by the time you close out the short shares. But there's another interesting possibility here...
      Your hypothetical vertical spread has both long and short volatility exposure. If your short gets assigned, your spread becomes net long volatility. This positioning can provide asymmetric, exponential gains with capped downside. But the gigantic reg-T short stock margin requirement is a drag on the party.
      So...can you get rid of the large margin requirement and stay mostly long volatility? ...It's possible!
      One way to play it
      - replace short stock with a deeper ITM short call. Look for one deep enough in the money that it's near delta 1.00 but not so deep that the spreads are painfully wide.
      - if possible, place a "covered stock" order to buy, eg, 100 shares and sell one 85-strike call together at something like $84.97
      - If filled, you will remove the large short stock reg-T margin requirement (~$16k) and replace with the short vertical requirement ($2500)
      ...now I have an 85/115 short call spread with the underlying around $113/sh. what now?
      - if the underlying continues up, you still maintain protection above 115 at expiration
      - if the underlying falls back a little, you no longer have a short position at 110 decreasing in price too slowly because it is too sensitive to volatility from being so close to ATM. you have a "stronger" short (which acts more like short stock but without the outrageous margin requirement) which will improve in value much faster than a short at 110
      - if the underlying falls A LOT, you now have a max gain on your position of $3000 instead of $500
      - catch #1: you may keep getting assigned until expiration, meaning even if you can do this, you might get exhausted from it
      - catch #2: you may have a hard time getting a good price on the covered buy. You have the choice of picking a less ITM strike and/or simply selling the call low, but those are more speculative plays which imply other assumptions about the market and your willingness to put more capital in the trade
      - catch #3: if ex-dividend is near, you run the risk of being assigned (again) and effectively being short going into ex-div and owing the dividend
      This may not sound like a huge win because it's not really. It's a small opportunity that can occasionally turn into an outsized win. If you were to purchase this kind of opportunity "off the shelf" (without having the short 110 call extrinsic paying for much of the extrinsic on the long 115 call), it would be expensive and generally unprofitable. The ability to massage a volatile situation for your benefit is a rewarding part of trading.

    • @chiragmehta8212
      @chiragmehta8212 ปีที่แล้ว

      @@cole6167damn you must be genius to do all this. MYbe I am just too dumb

  • @vive121
    @vive121 2 ปีที่แล้ว +3

    Option selling is really not for a small investors... The reason is limited capital..

  • @chanwenting576
    @chanwenting576 2 ปีที่แล้ว +2

    Hi Greg, thank you so much for sharing this. I am very new to option selling. Wonder if this work for sell put verticle as well? And is this works the same way in thinkorswim?

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +2

      Yes both call & put verticals put you at risk of buying/selling 100 shares you might not be able to afford

    • @chanwenting576
      @chanwenting576 2 ปีที่แล้ว

      @@TheFinancialMinutes thank you😊

  • @DinoTamer23
    @DinoTamer23 6 หลายเดือนก่อน

    Thanks for sharing your experience. Do you recall what your net loss was on this trade or thereabouts?

  • @YIWOTY
    @YIWOTY 2 หลายเดือนก่อน +1

    “… was already at the money whenever I opened it?” You mean WHEN you opened it. Whenever is for repeated events. Did you open this specific option on multiple occasions? No. Then use the word WHEN.
    Thanks for making the content.

  • @bavii5189
    @bavii5189 ปีที่แล้ว +1

    Please i would really appreciate if U can answer this.
    I have $15,000 in cash and have margin available upto $15000.
    Lets say If I sell Call Credit spread on SPY 400/403 expiring in February 17th for 1.20 and in one week SPY goes up to 405 I will be in deep red but I still have one and half month Left till expiration date.
    So in this case>
    1) will Robinhood ask me to deposit additional cash?
    2) if yes then will Robinhood close My position if I dont deposit additional cash.

    • @TheFinancialMinutes
      @TheFinancialMinutes  ปีที่แล้ว +1

      No since your expiration is so far out the odds of getting assigned is very low. Unless SPY went to like 450, then the options would have low extrinsic value which would make sense for the option buyer to exercise.

  • @RicardoHernandez-zr1pw
    @RicardoHernandez-zr1pw 2 ปีที่แล้ว +2

    I would just ensure that I have enough money to cover any assignments that can occur. That’s my fallback plan.

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +2

      You can but it shouldn’t be necessary as long as you have a margin account and you’re paying attention to these type of events

    • @RicardoHernandez-zr1pw
      @RicardoHernandez-zr1pw 2 ปีที่แล้ว +1

      @@TheFinancialMinutes I do use margin as well.

  • @billestep6804
    @billestep6804 2 ปีที่แล้ว +1

    That’s why I don’t sell put credit spreads at a strike I don’t have margin to buy at the short price. If it goes in the money you can sell the long put and roll down the short strike put or take assignment.

    • @davelawson2564
      @davelawson2564 2 ปีที่แล้ว +1

      He clearly does not what credit spread is , if he knew he would do as you advised. He seems to talking about naked call option that went against him

    • @billestep6804
      @billestep6804 2 ปีที่แล้ว

      @Dave Lawson you can do the same thing with call spreads Sell the long call use that credit to roll up and out in time the short option and buy another long call to cover Or just roll the credit spread out in time for a smaller debit than max loss.

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว

      @Dave Lawson It was most certainly a credit spread and I have a 90% win rate using spreads so I know what I’m doing 😉

  • @pmj24
    @pmj24 2 ปีที่แล้ว +1

    in your youtube short video. ur reply said u don't need margin account to cover assignments but here u said yes, is it because is 6 figures deficits? What is cash account?

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +1

      You need a margin account for trading spreads

    • @pmj24
      @pmj24 2 ปีที่แล้ว

      @@TheFinancialMinutes when you are assigned for example t stock at 23 for 3 contract $6900 and you dont have capital to buy. your portfolio is value $2k meaning the most you can borrow from robinhood is 2k with margin account?

  • @jpthegod
    @jpthegod 2 ปีที่แล้ว +1

    I’m trying to see how this happened if I never did call options and I never used money from Robinhood

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +2

      This could happen with Calls or Puts, on any brokerage

  • @mixxndj
    @mixxndj ปีที่แล้ว +1

    Just happened to me.. I followed this exactly. Exercised the long call.. it’s in queue for tomorrow, I’m ok right?? Ughhhhh

    • @Tx.details
      @Tx.details 9 หลายเดือนก่อน +1

      Are you ok?

    • @mixxndj
      @mixxndj 9 หลายเดือนก่อน

      @@Tx.details it was all good

  • @hvacguy11
    @hvacguy11 2 ปีที่แล้ว +2

    Since you were only able to exercise for 112,000 but you owed 148,000 does that mean you are still short 36,000?? Or your good because you were able to fulfill the 400 shares to the market.

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +3

      No I fulfilled the 400 shares I needed so it just resulted in max loss of the difference in strike prices minus my credit, times the 4 spread I had opened

    • @hvacguy11
      @hvacguy11 2 ปีที่แล้ว +1

      @@TheFinancialMinutes thank you for responding.

    • @asuragod_lol3275
      @asuragod_lol3275 ปีที่แล้ว

      so you cant lose more than ur maxloss at the open?@@TheFinancialMinutes

  • @slevineleven007
    @slevineleven007 ปีที่แล้ว

    So best to stick to Bear Call Spreads to prevent early assignment?

    • @chimchu3232
      @chimchu3232 ปีที่แล้ว

      You can get assigned on any spreads, the best way to avoid assignment is to close the position before your strike price is hit. Either roll it down or just wait for the market to give you a better entry.

  • @yasinnabi
    @yasinnabi 2 ปีที่แล้ว +1

    Great content as always, I enjoyed watching it...thanks....:) a fellow creator

  • @jeremyalameda1796
    @jeremyalameda1796 2 ปีที่แล้ว +1

    So robinhood will eventually do the exercising for you to counter the other exercise?

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +2

      I've had a hit & miss experience where one time they did, and another time they didn't automatically exercise. I would air on the side of caution and exercise yourself if they don't do it for you right away.

    • @Jujubees225
      @Jujubees225 12 วันที่ผ่านมา

      Robinhood would even close your otm credit spreads making you buy your short leg. In case it goes itm after hours.

  • @raztube90
    @raztube90 2 ปีที่แล้ว +4

    Great content but what is with video quality suddenly drops in frame and random noises coming from your recording devices?…
    I think your content is great just have to up your video quality and better background and you will be golden.

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +1

      The main segment was from a live session, I’ll see what I can do about the setup soon since I’ve been putting out more content gotta upgrade the quality

    • @raztube90
      @raztube90 2 ปีที่แล้ว +1

      @@TheFinancialMinutes thanks man
      What software do you use to record your screen ?
      I think you can use a new mic
      Maybe $300 range on Black Friday?

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +1

      I use OBS to record the screen and since I have the new silicon Mac I use SWB Audio Capture. The previous setup I had was a lot easier to use but I gotta get used to this one. I definitely need a new mic, the pop cover on my lav keeps falling off super annoying. I'll look into it!

  • @vive121
    @vive121 2 ปีที่แล้ว +1

    I thought as the loss and profit is fixed there shouldn't be any margin issue but I got a call from broker.. hope the RMS system closes the position...

  • @matmath1996
    @matmath1996 ปีที่แล้ว

    Thanks for this video: is it possible to be assigned the very last day and not have time to exercice the call you bought to cover your position so that it becomes too late ?

    • @NickBarling
      @NickBarling ปีที่แล้ว

      Yes! Never let a CALL or DEBIT Spread expire. After trading for options closes there is still time that you could be assigned, and that could occur when your long (the buy protection) leg has expired leaving you open to unlimited risk. ALWAYS CLOSE SPREADS BEFORE EXPIRATION.

    • @matmath1996
      @matmath1996 ปีที่แล้ว

      ​@@NickBarlingthank you 👍

    • @Tx.details
      @Tx.details 9 หลายเดือนก่อน

      @@NickBarlingthis can really happen? Source? Example?

    • @adamtamimi
      @adamtamimi 7 หลายเดือนก่อน

      I thought you were supposed to let a call debit spread expire if it's ITM???@@NickBarling

    • @Deefoh
      @Deefoh 6 หลายเดือนก่อน

      @@NickBarlingwouldn't that mean you could never profit from the premium on what you sold?

  • @arielmark2094
    @arielmark2094 2 ปีที่แล้ว +1

    Hi Greg, why was your call spread opened around 290 when Microsoft was trading above 340?

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +2

      MSFT went up ~50 its after opening the trade 4-6 weeks ago. I bet with an ITM Credit Spread assuming a large drop, but it didn't end up happening.

    • @AhmedElnagar-fw8wt
      @AhmedElnagar-fw8wt 2 ปีที่แล้ว

      Can you explain please how to solve that on the app?

  • @celebrateme
    @celebrateme 9 หลายเดือนก่อน

    Why can't you just buy way otm for like .01 on same day expiration where there is 0 chance for assignment and let expire then collect the credit on a put credit spread??

    • @Deefoh
      @Deefoh 6 หลายเดือนก่อน +1

      i'm a noob but i think it's just really small profits if you do that. and a much bigger risk ratio if somehow it does get to the very unlikely price. so for example, you could make something like $10 on each spread and win the majority of the time but when you lose it'll be something like $200. so one loss could eat through a lot. but hey, someone is selling all those way OTM prices and they are probably doing that type of spread.
      edit: oh and a big thing to consider is that it ties up collateral. so you won't be able to trade with that $200 you are risking until the spread is closed

  • @thechuck141
    @thechuck141 2 ปีที่แล้ว +1

    Don't see how this happens it so easy first sell it don't exercise I sell way before expiration

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +2

      Ya if you’re the buyer, but as the seller you’re under obligation.

  • @arielmark2094
    @arielmark2094 2 ปีที่แล้ว

    Hi Greg, can you also sell the long position instead of exercising ?

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +1

      No if you sell it you give away your right to exercise the option

    • @arielmark2094
      @arielmark2094 2 ปีที่แล้ว +2

      So once you exercise, does that mean you take max loss which is diff between the two strikes minus the premium ?

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +1

      Yes exactly

  • @simonwallis1787
    @simonwallis1787 2 หลายเดือนก่อน +1

    Indexes have european expiries. Ie expiry date only

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 หลายเดือนก่อน +1

      Ya trading index options is one way to avoid this

  • @ricardocortez2610
    @ricardocortez2610 2 ปีที่แล้ว +1

    Oh oh

  • @timg00
    @timg00 ปีที่แล้ว +1

    If you are selling why are you allowing so much time.

    • @TheFinancialMinutes
      @TheFinancialMinutes  ปีที่แล้ว

      I've cut my expirations way shorter with the recent volatility

  • @biztelegraph5934
    @biztelegraph5934 2 ปีที่แล้ว +1

    I had 15 million on a margin call in 2020 with SPY

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +1

      Jeeeez, must have been a nightmare to see when you first opened your trading app 😬

    • @Tx.details
      @Tx.details 9 หลายเดือนก่อน

      Bruh how

  • @arielmark2094
    @arielmark2094 2 ปีที่แล้ว +1

    Greg, I heard that getting assignment can Happen but it’s rare. Did you let it get deep ITM or let it expire ?

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +1

      It was deep in the money but hadn’t expired yet. The extrinsic value was so little it made sense for the Call buyer to exercise early.

    • @arielmark2094
      @arielmark2094 2 ปีที่แล้ว +1

      Were you doing a call credit spread or selling a put credit spread ? What is the reason you left it deep ITM?

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +1

      Call credit spread. I left it because the risk was low only had one or two hundred dollars to lose on the trade.

    • @davelawson2564
      @davelawson2564 2 ปีที่แล้ว

      @@TheFinancialMinutes so you bought call option with same expiration and sold your ITM long call option and net loss was $200 ? Is that correct ?

  • @cubalkan
    @cubalkan ปีที่แล้ว +1

    Just stick to index options which are european style options...why having the stress 😂

  • @johnt697
    @johnt697 7 หลายเดือนก่อน

    Sorry not registered...

  • @brendanquinn6894
    @brendanquinn6894 2 ปีที่แล้ว +1

    Get some sleep Greg, you look tired mate.

    • @TheFinancialMinutes
      @TheFinancialMinutes  2 ปีที่แล้ว +1

      I’ve got lots of energy lately but I’m taking a break for thanksgiving to spend time with family ❤️

  • @davidchimnomso4432
    @davidchimnomso4432 3 หลายเดือนก่อน +1

    Hi can i get the discord link ?