Covered calls in registered accounts
QT also allows covered calls on "options level 2" permission.
Dec 11th, 2020 7:09 pm
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Dec 12th, 2020 5:28 pm
I think that restriction is correct. The cash margin would become a non-qualified investment. Per CRA folio on qualified investments:
Dec 12th, 2020 6:29 pm
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.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...."
Dec 12th, 2020 7:31 pm
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.
Dec 12th, 2020 8:35 pm
It's easy to grin when your ship comes in and you've got the stock market beat.
But the man worthwhile is the man who can smile when his shorts are too tight in the seat 😃
In Fed We Trust - Make ES Limit Down Great Again!
Dec 13th, 2020 7:41 am
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.
Dec 13th, 2020 7:51 am
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.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.
Dec 13th, 2020 12:29 pm
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.
Dec 14th, 2020 7:41 am
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.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.