Investing

Covered calls in registered accounts

  • Last Updated:
  • Dec 14th, 2020 7:41 am
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Deal Addict
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Aug 4, 2014
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Toronto, ON
I sold covered calls in my RRSP a few times, yes (Questrade, Level 2 indeed :))
Newbie
Nov 29, 2020
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Yes covered calls are permitted in registered accounts, as well as long options (buying a put contract or buying a call contract).
Deal Addict
Jul 5, 2008
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I do it all the time. I'd like to be able to do option spreads as well. I see no reason that debit spreads shouldn't be permitted, they are in US reg accts (IRA, etc)
Jr. Member
Jan 5, 2015
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Toronto, ON
yes, but it's really shitty to do anywhere else outside of Interactive Brokers. Everyone else charges a fee for getting assigned, also the typical $9.99 flat rate and $1/contract

No idea why cash-covered puts aren't allowed though
Member
May 2, 2019
469 posts
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Vancouver
aronpm wrote: No idea why cash-covered puts aren't allowed though
I think that restriction is correct. The cash margin would become a non-qualified investment. Per CRA folio on qualified investments:

"1.43 It is common practice for brokerage firms to impose margin requirements in connection with various options strategies. For example, an option writer may be required to deposit cash with their brokerage firm to cover their obligation under the option agreement. As noted in ¶1.15, if the deposit is left with the broker for longer than a few days, the deposit would not be a qualified investment...."
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yvrbanker wrote: I think that restriction is correct. The cash margin would become a non-qualified investment. Per CRA folio on qualified investments:

"1.43 It is common practice for brokerage firms to impose margin requirements in connection with various options strategies. For example, an option writer may be required to deposit cash with their brokerage firm to cover their obligation under the option agreement. As noted in ¶1.15, if the deposit is left with the broker for longer than a few days, the deposit would not be a qualified investment...."
But if you have sufficient cash in the reg acct to cover assignment of naked puts there is no margin needed. They would need to lock the cash as part of the buying power and make it 100% match which doesn't happen in a margin acct.

If I sell 1c of an AAPL 100$ put the broker just needs be to have 10k in cash and it gets locked against usage for other trades.

I'd rather be able to create debit option spreads than sell naked puts if I had to pick one.
Member
May 2, 2019
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Vancouver
shadowsteve wrote: But if you have sufficient cash in the reg acct to cover assignment of naked puts there is no margin needed. They would need to lock the cash as part of the buying power and make it 100% match which doesn't happen in a margin acct.
OK, maybe the word "margin" is confusing as there is no borrowing. There still is a difference between idle cash in the account and cash that is locked as a collateral. Using cash as a collateral makes it a part of the investment, one could say. Such use for cash is not a qualified investment type. That's how I read it.

Debit spreads come with their own can of worms, when one leg of the spread is assigned and the other isn't. That can create a non-qualified investment situation immediately.
Deal Fanatic
Jun 27, 2007
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I do covered calls in reg accounts on ETFs
One needs liquidity to do it
VFV is 2.5*
VOO is 3.5*
SPY 5*
SPLG 1*
I haven't tried XSP in awhile. Ahould be as good as VFV or better

When bearish, i sell 70-60 delta calls, when neutral 60-50 delta, and bullish 40-30

Assignment fees at canadian brokerages sucks, so have to keep close eye on the dividend ex dates and roll. Normally, when option is within 20 days AND remaining time premium is less than 50c, just roll.
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porticoman2 wrote: would you care to give an example(s) of a debit spread that you would do or have done & the reason for that trade?
I hold 3 in margin accounts right now. TSLA Jan 550/600 call spread. Also for Feb & Mar. Max loss is the money spent and reduces the net cost but limits the upside. In a registered account I can buy the Jan 600 call currently $73.60 for an outlay of 7360$/contract and that's my max loss, unlimited gains. However in a non-reg acct I can reduce my cost and risk by selling the Jan 650 for $53.15 and reducing my risk and cost to $20.45/contract. This also limits the gain to $50/contract. As long as I can't sell the Jan 600 without closing the Jan 650 first or in one trade then there is no unlimited risk.

Don't know how much you know about options but anytime you pay for a spread or option position then what you spent is the limit of your loss. If someone pays you then the loss is technically unlimited or at least it's a lot more than you received.

I sell naked options in margin accts but there would be no advantage to selling them in a reg acct which is intended to be safer & longer term than a margin acct.
Last edited by shadowsteve on Dec 13th, 2020 12:31 pm, edited 1 time in total.
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yvrbanker wrote: OK, maybe the word "margin" is confusing as there is no borrowing. There still is a difference between idle cash in the account and cash that is locked as a collateral. Using cash as a collateral makes it a part of the investment, one could say. Such use for cash is not a qualified investment type. That's how I read it.

Debit spreads come with their own can of worms, when one leg of the spread is assigned and the other isn't. That can create a non-qualified investment situation immediately.
Yes, they would need to change the reg acct rules to permit it. It's not just a bank thing. If it's a debit spread and the short leg gets assigned then they just close the long leg as you're in a net gain position. Same as if I sell a covered call against a stock position which is technically a debit spread. A credit spread could be messy though.
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Jul 5, 2008
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porticoman2 wrote: Thanks for the response.

I wasn't aware it was possible to sell naked options in a registered account or to do debit spreads in a registered account!

could you please explain or confirm the above?
No, you can't do any of those things in a reg acct, sorry if my posts inferred otherwise but wherever I'm talking about naked or call spreads that's a margin acct. I was saying that a call spread has less risk than a single leg but there's likely a reason the gov't doesn't want it. It's not a broker issue though as Americans can do it in their reg accts.

So just to be sure. You can sell calls against an equity/ETF position in a reg acct. You can buy calls or puts in a reg acct but you can't sell against them. I edited my original post and added the bold part.
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Jul 5, 2008
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porticoman2 wrote: @shadowsteve appreciate the discussion & your responses.

when doing spreads - to minimize risk (understanding that there may be a lower return) would it be better to do an ITM (in the money) debit call spread?

of course one would need to look at time to expiry, IV, decay & premiums.

on naked puts a similar situation, high IV, long puts, DOTM naked puts & play time decay.

your thoughts?
Whether you choose ITM or not depends on the plan. I usually buy long calls with a strike around the current stock price. If the stock moves up a lot then I will look to create a spread for no cost or credit. For high priced stocks like AMZN or GOOGL I tend to buy OTM calls and just sell them when I have a gain (or get out if it goes the wrong way). For the TSLA I have one of the spreads I legged into for a free one, the others were bought as spreads.

I sell naked puts on stocks I don't mind owning and where there is enough premium (AAPL mostly). Obviously all this is in margin accts.

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