In the world of options trading, it's common to hear phrases like “I sold an option and received a credit.” While this might sound like a real gain or income, it is actually a very misleading way to describe what's happening.
What Actually Happens When You Sell an Option
When you sell (write) an option, you do receive a premium — a cash inflow — which is added to your account as available funds. However, this does not mean you’ve earned that money. It's not profit. It’s not guaranteed. And most importantly, it’s not a “credit” in the true financial sense.
Why Calling It a "Credit" Is Confusing
In everyday finance, the word credit usually means money that someone owes you — like when you lend money to someone. But when you sell an option, you haven’t given anyone a loan. You’ve taken on a financial obligation.
The term "credit" here only refers to the accounting entry that reflects incoming cash — not a gain, not a receivable, and certainly not money you can consider yours unless the option expires worthless or is closed profitably.
📊 Where Does the “Credit” Go in a Real Broker Account (e.g., IBKR)?
When you sell an option on Interactive Brokers (IBKR), here is what happens on a technical level:
- The option premium you receive appears in the “Cash” and may also be reflected in “Available Funds” or “Excess Liquidity”.
- However, IBKR immediately applies a margin requirement against the short position. This reduces your buying power and may completely negate the increase in available cash.
- Your Net Liquidation Value stays nearly unchanged. Why? Because IBKR marks options to market instantly — the “credit” you just received is balanced by the open liability of the short position.
- This means you did not actually increase your account equity — you just took on risk in exchange for potential future profit.
💡 What You Should Focus on Instead
Forget the idea of “credit received.” As a serious trader, the only numbers that truly matter when evaluating your options positions are:
- Net Liquidation Value – Your actual total account value if all positions were closed at current prices.
- Initial and Maintenance Margin – How much capital is tied up and how much buffer you have before triggering margin calls.
- Margin-to-Equity Ratio – A key metric to assess whether you're overleveraged.
- Stress Testing – Simulating adverse market moves (e.g., +5% or -5% SPX) to see the real impact on NetLiq.
Conclusion
Words matter — especially in trading. Calling an open-risk cash flow a “credit” misleads traders into thinking they’ve made money when in fact they’ve just entered into a potentially risky position.
If you’re managing serious capital and trading with real exposure, ignore the fantasy of “credit collected” and stay laser-focused on NetLiq and Margin. That’s what keeps you alive in this game.