Question about Vanguard options trading and lot assignment

[Golden Mean]

If I write a covered call on a stock I own and it's possibly/probably going to get assigned, can I control which lot is sold? I found a Reddit post mentioning you have to call Vanguard, but no details about the timing required to ensure you/them sell the lot you desire. I don't see a way to 'bind' a lot to the option when you write it (which would be way cool).

2nd question. Doing cash-secured puts, does the cash used to 'secure' remain in your settlement fund and earn interest or is there some sort of escrow it's pulled into?

 

[OverThinkMuch]

Vanguard has a cost basis option "HIFO" which stands for "highest in, first out". Can you edit the cost basis of your calls and switch to that?

All of Vanguard's competitors charge $0.65/option contract, while Vanguard charges +50% more at $1.00/contract. For low costs, you might want to avoid Vanguard.

https://www.schwab.com/pricing
https://www.fidelity.com/trading/commissions-margin-rates
https://www.interactivebrokers.com/en/pricing/commissions-home.php
https://investor.vanguard.com/client-benefits/brokerage-fees-commissions

 

[pb4uski]

... 2nd question. Doing cash-secured puts, does the cash used to 'secure' remain in your settlement fund and earn interest or is there some sort of escrow it's pulled into?

Yes, the money stays in your settlement account and earns interest but is not available for trading... the strike * contracts *100 is effectively locked up in the settlement account for the term of the written put.

 

[Golden Mean]

Vanguard has a cost basis option "HIFO" which stands for "highest in, first out". Can you edit the cost basis of your calls and switch to that?

All of Vanguard's competitors charge $0.65/option contract, while Vanguard charges +50% more at $1.00/contract. For low costs, you might want to avoid Vanguard.

https://www.schwab.com/pricing
https://www.fidelity.com/trading/commissions-margin-rates
https://www.interactivebrokers.com/en/pricing/commissions-home.php
https://investor.vanguard.com/client-benefits/brokerage-fees-commissions

I don't see anyway to change the cost basis applied (to the stock or option). I suspect it defaults to FIFO which doesn't work for me as my latest stock purchase has the lowest cost basis and would be what I'd want to be assigned.

Interestingly, I haven't been charged for option trades. I've been doing covered calls in an IRA for the last 6 months and commission/fee always says FREE. And, no, I don't have a balance that gets me to the no-commission tier(s).

Yes, the money stays in your settlement account and earns interest but is not available for trading... the strike * contracts *100 is effectively locked up in the settlement account for the term of the written put.

Thanks! I'm contemplating selling puts on TSLA at $100 for fun and excitement.

 

[tutan]

To be certain, I would open a separate account, transfer the particular lots over, and sell the calls in that account. Of course you will need to call them to make the transfer.
Isn't money set aside to cover potential assignment at any time the cost of doing business? I assume as interest rate goes up, traders will demand higher option premiums accordingly.

 

[NW-Bound]

I do options mainly on IRA accounts, so have not thought about the possibility of designating which lots to be assigned until this thread.

About the cash, at Merrill Edge my money to secure the puts is in a BlackRock short-term Treasury which currently pays 4.04%. It is like a market-money fund at $1/share.

When I get assigned a put, the money to pay for the assigned shares is taken from the another cash sweep fund, because the BlackRock fund cannot be set up as a sweep fund. There's something about SEC regulations that I have not dug into, and the problem with me having to use 2 funds may be peculiar to Merrill Edge only. I have to shuffle money between the Black Rock fund and the sweep fund myself, which is a chore.

I also have accounts with Schwab, but prefer to use Merrill Edge for option selling because of the lower fee of $0.35/contract instead of $0.65 at Schwab.


PS. Because of the 4.04% yield on the cash, plus the money made from the option writing, I have not spent time to look into buying bonds.

 

[OverThinkMuch]

I also have accounts with Schwab, but prefer to use Merrill Edge for option selling because of the lower fee of $0.35/contract instead of $0.65 at Schwab.

Merrill Edge claims $0.65/contract on their website. If there's a way to get $0.35/contract, I'd like to hear more about how that happened. Schwab, for example, allows negotiating their margin loan rate.

"Get unlimited $0 online option trades with no trade or balance minimums.
$0Footnote * + $0.65Footnote * per contract"
https://www.merrilledge.com/pricing

 

[Golden Mean]

I do options mainly on IRA accounts, so have not thought about the possibility of designating which lots to be assigned until this thread.

Yeah, all of my IRA covered calls are/were on lots bought at the same time, so no thought/issue with assignment lots. But in my taxable I've got a stock I bought on the way down, so I'd like to write calls on the lowest/newest lots and hold the bag on the higher ones for now.

PS. Because of the 4.04% yield on the cash, plus the money made from the option writing, I have not spent time to look into buying bonds.

I hear your. VMFXX did close to that last month, so I'm quite happy if I can write puts and leave the cash in there.

 

[NW-Bound]

Merrill Edge claims $0.65/contract on their website. If there's a way to get $0.35/contract, I'd like to hear more about how that happened. Schwab, for example, allows negotiating their margin loan rate.

"Get unlimited $0 online option trades with no trade or balance minimums.
$0Footnote * + $0.65Footnote * per contract"
https://www.merrilledge.com/pricing

I saw your question just now.

I believe the $0.35/contract is because of my account status of "Premium Elite". You need to have $1M+ with them.

Come to think of it, back when a contract fee was $7, I did not sell too many options, even though I started to dabble in this back more than 20 years ago.

Now, I do more than 10 contracts/day.

 

[OverThinkMuch]

I saw your question just now.

I believe the $0.35/contract is because of my account status of "Premium Elite". You need to have $1M+ with them.

Come to think of it, back when a contract fee was $7, I did not sell too many options, even though I started to dabble in this back more than 20 years ago.

Now, I do more than 10 contracts/day.

If their money market and fees are competitive, I could see moving $1M+ over to Merrill Edge. But they appear to be closing down expat accounts, except for those over $1M.

"Reports from insiders state only those whose accounts hold less than one million US dollars are being terminated"
https://www.expatsblog.com/news/241...-brokerage-account-closures-causing-problems-

When I apply online and indicate I have a non-U.S. address I get:
"Only U.S. residents can apply for a Merrill Edge self-directed account online at this time."

Vanguard charges $1/option, and Schwab underpays on cash balances - so it sounds like Merril Edge is better on those fronts. I'll call them to find out more.

 

[Golden Mean]

Getting (slightly) back on topic. As a short term test, sold a put for TSLA on Weds @105, expiration Jan 6. The CSP worked just as pb4uski stated. I woke up Friday to see that the stock had dropped to 101 at open and was currently at 113. I was thinking it would be great if I was assigned the stock early, but no dice. I could have made something like 9% in 3 days.

On the covered call issue, the newest shares I was going to write calls on, dropped an additional amount, so now I'm holding the bag on those too!

All in all, doing CCs last year and a CSP this year has been fun. Looking forward to more market drama.