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For cash-secured put writing, I have enough cash in my account to cover the put if it is exercised. Is there a special category that this cash falls into with respect to free-riding?

Say I wrote a $90 put on XYZ (secured by $9000 cash) a month ago, so it's settled, and I have an additional $1000 just sitting there. If I use that $1000 to buy another stock and sell it before the settlement date, would that count as a free ride? Or since there is an extra $9000 in the account, is there enough to cover that purchase and it's not free riding?

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The premium received is unrestricted and is yours to do whatever you want with it.

A cash-secured short put requires that you have the cash in your account to buy the stock if you are assigned. It doesn't matter what the source of the cash is.

In your example, your CSP requirement is $9,000. Since the premium received from writing the $90 put is $1,000 then you must have an additional $8,000 to cover the margin requirement.

  • I'm asking about free riding, though. If I buy and sell a security before the trade settles with that $1000, is it considered free riding (since the original buy hadn't settled) or not (since there is technically still another $9000 in "settled" funds in the account)? – Anger Density Jul 27 at 11:41
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    A $90 Cash Secured Put (short) requires $9k in the account to be covered. The cash is a segregated amount and must be present until the short put is assigned or closed. The additional $1k is yours to do with as you please and has nothing to do with the CSP written. Free riding is the buying and selling shares of a security without having the capital to cover the trade. If you have a cash account and you buy more then $1k of securities with only $1k, you are free riding. – Bob Baerker Jul 27 at 11:55

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