Trading Options on Margin enabled Vanguard Brokerage

[RetireGood]

Hi

I have margin enabled on my vanguard margin. Never used it or intend to use it.
(But once I got charged few cents margin interest, because I withdrew funds that were not settled yet. I asked VG to waive it, they said no)

Today I sold a put option. VG gave below warning at the order page
"we might reject order as it requires cash if assigned etc. 'Cash available to trade' will be shows less etc.'
Anyways the put sell order went through and my account got credited with the premium.

Questions I have

1) The settled premium is not in the VG settlement fund.
It is in 'Total credits and debits' and 'Available balance'. why it is not in settlement fund.?

I saw this same thing happen to bank pulls VG did when I was buying VUSXX (told VG to pull funds from my bank)
Looks like VUSXX also gave AUG'24 interest, it doesn't show up anywhere(transaction history etc.) on VG website, but reflected in above fields.

Anything not ordinary here?


2) I plan to 'buy to close' this option before expiry (09/20).
I don't mind getting assigned, but I think I will not get assigned.

But just in case if this gets assigned to me and I do not have funds in VG settlement fund, will VG auto-liquidate my positions to cover this or I have to do it explicitly? My positions are (VTSAX, VFIAX, VTMSX, "VUSXX"). Also I guess in this case margin interest will get accrued.

Does VG has Fidelity like auto-liquidate from $1 NAV funds? If VG does auto-liquidate what is order of funds it uses and what %?

Should I develop a cash position here in VG settlement fund right now or can I initiate a cash position (basically sell VUSXX) on the day if I get assigned?



3) I checked 'Month-to-date margin interest' field nothing shows up there.
Also where to check for total margin charged so far if any on the VG website? Transaction history doesn't include any filter/field for margin.

Thanks

[chinchin]

1) The settled premium is not in the VG settlement fund.
It is in 'Total credits and debits' and 'Available balance'. why it is not in settlement fund.?

Because the trade hasn't settled yet.

[livesoft]

So was this a naked put?

Just because one has a margin account does not mean that one can do all kinds of options trading. As I understand it there are different "Levels" of option trading permission that one has to get authorized for from their brokerage. Often this is based on experience with using the lower levels.

https://www.optionstrading.org/getting- ... ng-levels/

But you probably knew all this.

Your questions are probably better asked of a competent Vanguard options desk CSR. It could even have been a mistake that your order went through.

[RetireGood]

1) The settled premium is not in the VG settlement fund.
It is in 'Total credits and debits' and 'Available balance'. why it is not in settlement fund.?

Because the trade hasn't settled yet.

Thank You.

[RetireGood]

So was this a naked put?

Yes it is a naked put (like in settlement fund has no funds, even though rest of account positions have sufficient funds which probably doesn't matter here)

Just because one has a margin account does not mean that one can do all kinds of options trading. As I understand it there are different "Levels" of option trading permission that one has to get authorized for from their brokerage. Often this is based on experience with using the lower levels.

https://www.optionstrading.org/getting- ... ng-levels/
Trading level 3 would usually allow the writing of options for the purposes of creating debit spreads. Debit spreads are options spreads that require an upfront cost and your losses are usually limited to that upfront cost. Although debit spreads involve writing options without a corresponding position in the underlying security, the losses are limited by having multiple positions on options contracts based on that same underlying security.

I checked my trading profile, I have Trading level 3, but it says

• Buy Calls and Puts, and Write Cash-Secured Puts. Write Covered Calls, and Write Covered Puts.

Seems no naked puts. But I have margin, going through VG margin doc below, its not clear, if I will be charged margin? when? I hope it is the former

• Only when I am assigned
  Now itself, as I did a naked put

So right now I put a sell order for VUSXX to cash-secure the put option.

Your questions are probably better asked of a competent Vanguard options desk CSR. It could even have been a mistake that your order went through.

Looks like if I didn't have margin, it would be a mistake that the trade went through. Maybe the trade went through backed by my margin.
I will contact VG, but they more strict/stingy than us, didn't waive even few cents (schwab waived in similar case when I pulled funds before settlement)

https://personal1.vanguard.com/pdf/margin.pdf Also probably I won't incur "trading violation" from this doc, as I had margin enabled?

[alex_686]

Seems no naked puts.

This is a naked put.

Naked puts are considered very high risk. However the maximum loss is if the stock went to zero and you were exercised. If you have the cash to cover that then the regulators figure you have sufficient capacity to take the risk. Cash available through margin counts as cash.

If your situation changes and you no longer have the cash - well, then things change. Then you flip from level 3 to level 4. If you don't qualify for level 4 then you may be forced to close your position, have withdraws from your account limited, or something else.

[RetireGood]

Seems no naked puts.

This is a naked put.

Naked puts are considered very high risk. However the maximum loss is if the stock went to zero and you were exercised. If you have the cash to cover that then the regulators figure you have sufficient capacity to take the risk. Cash available through margin counts as cash.

If your situation changes and you no longer have the cash - well, then things change. Then you flip from level 3 to level 4. If you don't qualify for level 4 then you may be forced to close your position, have withdraws from your account limited, or something else.

Thanks.

o.k. wanted to see what L4 means, it says below.
Looks like L3 is no more but see L2 is eligible for cash secured puts - my naked-put went-through since I had margin enabled

So when will I start accruing margin interest now?
( I put a after-market hours sell order for VUSXX to cover the cash for this naked-put in case it gets assigned.
(VG seems so primitive still at least compared to Fidelity - Fidelity will auto-liquidate the $1 NAV funds to cover these)

--
VG Option Level options



Hedging and speculation (Level 2 trading)
Level 2 trading allows you to:
• Purchase calls and puts, including index options.
• Write cash-secured puts.
• Write covered calls.
• Purchase protective puts.

Income and speculation
>>(Level 3 trading)
(No longer offered) Level 3 offered the ability to trade equity and index spreads

>>Level 4 trading allows you to:
• Write uncovered (naked) puts.
• Write covered calls.
• Purchase protective puts
• Purchase calls and puts, including index options.
• Write cash-secured puts.

Cash-secured puts have a special settlement fund balance requirement, which is based on the full amount necessary to secure the total value of the put position.
Your funds available for trading will be reduced by this required amount when your order is placed.

[alex_686]

The actual margin requirements for naked puts are fall less. The numbers vary but lets say only 5% to 25% of that a cash put.

Margin will start when you actually start borrowing. Right now they just care about capacity.

[RetireGood]

The actual margin requirements for naked puts are fall less. The numbers vary but lets say only 5% to 25% of that a cash put.

Margin will start when you actually start borrowing. Right now they just care about capacity.

O.k. I do not accrue any margin yet
maybe I will cancel my VUSXX sell order and keep eking out little TEY (I am in CA) Should I?, given below was my 'sell to open' naked put option

PUT NVIDIA CORP $90 EXP 09/20/24

I don't expect I will be assigned this.
I plan to 'buy to close' when this has still some extrinsic value left and buy in open market if I really want to buy shares.

[chinchin]

The actual margin requirements for naked puts are fall less. The numbers vary but lets say only 5% to 25% of that a cash put.

Margin will start when you actually start borrowing. Right now they just care about capacity.

O.k. I do not accrue any margin yet
maybe I will cancel my VUSXX sell order and keep eking out little TEY (I am in CA) Should I?, given below was my 'sell to open' naked put option

PUT NVIDIA CORP $90 EXP 09/20/24

I don't expect I will be assigned this.
I plan to 'buy to close' when this has still some extrinsic value left and buy in open market if I really want to buy shares.

Are you up or down on this position? Based on how NVDA and implied volatility have moved, I'm assuming you're losing money on the short put. I'm selling covered calls on NVDA and my position moved down yesterday so I'm assuming IV went up.

[RetireGood]

The actual margin requirements for naked puts are fall less. The numbers vary but lets say only 5% to 25% of that a cash put.

Margin will start when you actually start borrowing. Right now they just care about capacity.

O.k. I do not accrue any margin yet
maybe I will cancel my VUSXX sell order and keep eking out little TEY (I am in CA) Should I?, given below was my 'sell to open' naked put option

PUT NVIDIA CORP $90 EXP 09/20/24

I don't expect I will be assigned this.
I plan to 'buy to close' when this has still some extrinsic value left and buy in open market if I really want to buy shares.

Are you up or down on this position? Based on how NVDA and implied volatility have moved, I'm assuming you're losing money on the short put. I'm selling covered calls on NVDA and my position moved down yesterday so I'm assuming IV went up.

I did a 'sell to open' (naked) put here yesterday and collected premium. It is almost at the same price as yesterday. - i.e. if I had sold the same option today/now, it would have given almost the same premium to me
(As expiry date approaches and if there is any chance of this getting assigned to me, I will 'buy to close' this (and decide whether to buy shares in open market) or let is get assigned to me (and acquires shares that way). If it doesn't get assigned (to me) or expire worthless (for whoever was the buyer), I will keep the premium)