r/thetagang
Question regarding CSP on Penny Stock
User asks about selling CSPs on penny stocks where premium exceeds collateral, misunderstanding margin rules and assignment risks.
- The premise is factually impossible as brokers require full cash collateral for naked puts on penny stocks, preventing premium > collateral scenarios.
- Penny stocks carry extreme liquidity risk and potential delisting, making option strategies highly dangerous regardless of premium.
- Misunderstanding basic options mechanics suggests high probability of significant capital loss for the trader.
Hi this may be a stupid question but what are the downsides of selling a put on a volatile penny stock if the premium is greater then the collateral. For example on NOTV the premium for the $2.5 Put is $209 and the collateral is $40. Even if its assigned and I lose all my collateral; there is still a $169 net gain. What am I missing?
Please post the Ask and Bid. That contains the answer about 97% of the time
If it gets assigned, then you're spending $2.50 for shares currently worth about 15 cents.
Sell 1 put: make $209
Buy 100 shares: spend $250
Value of your new 100 shares: $15
I think you're out $26 unless the shares go back up. Call premium looks like 0 to 5 cents right now so there's no real wheeling that could grind back up.
curious what penny stocks have a liquid option chain?
OP mentioned one, but off the top of my head BYND and SPCE both come to mind. Both had meme interest in the last 12 months.
collateral is not = max loss. your total max loss on a 2.5 strike put with 2.09 in premium is $41. This means that if NOTV went to 0 you would lose $41.
May be a stupid question?
The elusive infinite free money hack has finally been discovered... again!
This is what happens when colleges stop requiring SAT for admittance.
At the current price of $0.17, when you are put the shares, you will be buying 100 shares at $2.50, so your cost will be $250. You'd then be able to sell them for $17.
Premium in: $209
Buy stock: ($250)
Sell stock: $17
Net loss of $24.
It is, what he means is he only needs 41 dollars in margin to pull it off because of the 209 in premium.
You have to understand that your post showed that you have a dangerous misunderstanding of the mechanics of how options work.
Its great that your asking questions, the people giving you a hard time are making an assumption that your running an active account. I dont know if you are or arent. If you are its a race between learning and getting yourself hurt if there is a meaningful amount of money in there.
Jumping into options half cocked is like watching someone jump onto a R1 as their first motorcycle with no helmet after watching a YouTube video. Or ralphie in a Christmas story, "you'll shoot your eye out kid".
You are not ready if profit and loss calculations are not reflexive.
the math already got covered but the part that actually kills you on these is the exit, not the entry. say you get assigned the notv at 2.50 and its trading at 17 cents. now what, you cant sell covered calls for anything because the whole option chain is worth a nickel, and rolling a sub dollar strike is impossible. youre just bagholding a dying ticker with no way to wheel out. the premium over collateral thing always shows up on names youll never be able to leave. if it looks like free money on the screen, the spread is usually the one collecting.
The catch is you’re anchoring to collateral instead of notional risk.
You’re not risking $40.
You’re agreeing to buy shares at $2.50, so the actual obligation is $250/contract.
The reason premium is bigger than collateral is because the market thinks there’s a real chance the stock is basically toast.
Whenever something looks like “free money” in options, it’s usually worth asking:
“What probability is the market pricing that I’m underestimating?”
Penny stock CSPs can work, but a lot of times you’re basically selling disaster insurance on companies that are one bad filing away from getting nuked.
He doesn't understand the basic math. If anything, this belongs in the beginners thread.
The lower the price the more you should look into covered calls, as rolling becomes harder when a dime is still a significant percentage