Open Premium Is Not Income Yet
The credit hit your account on day one. It is still not yours, and here is the accounting reason why.
Worth reading first: Cash-Secured Puts, From Cash to Assignment
Course contents73 lessons · 28 questions
Options selling has a peculiar cash-flow shape that almost no other strategy shares: you are paid on day one, and you find out whether you earned it on day thirty.
That gap is where a lot of confusion lives. The credit is genuinely in your account, it is genuinely yours to see, and it is genuinely not income yet.
Gross, net, and actually kept
Adjust the credit, the buyback and the fees, then switch between an open and a closed position. Notice what happens to the final figure when the position is still open.
- Gross premium collectedthe number people quote
- +$250
- Cost to buy backonly if you closed early
- −$60
- Fees and commissionssmall, and always there
- −$3
- Premium kept
- +$187
Switch to “Still open” and the final figure disappears. That is the honest answer for an open position: the credit is in your account, and none of it is income until the obligation ends.
Why the cash is not the profit
When you sell a put you receive cash and take on an obligation. The cash is an asset; the obligation is a liability. Until the obligation ends, you hold both — and reporting only the asset is not an optimistic accounting choice, it is an incomplete one.
The liability has a market value: the current price of buying the contract back. That is why a broker shows a short option position with a negative mark even when you collected cash to open it.
Unrealised P&L = credit collected − cost to close right nowThe honest mark on an open short option at any moment.
| Moment | Cost to close | Unrealised | Realised |
|---|---|---|---|
| Day 1 | $250 | $0 | $0 |
| Day 15, stock flat | $120 | +$130 | $0 |
| Day 15, stock fell | $480 | −$230 | $0 |
| Expired worthless | $0 | — | +$250 |
A put sold for $250. The same position at four moments.
The realised column stays at zero until the position ends. That is not conservatism; it is what realised means.
Why a dashboard should separate them
Adding open premium to realised P&L produces one number that is wrong for every purpose. It overstates income, because the open portion is unearned. It also understates risk, because it hides how much of the reported figure is still exposed.
Reported separately, each answers a real question:
- Realised P&L — what this book has actually made. The historical record.
- Open premium — what is currently at stake and could still become income. The forward-looking exposure.
Premium Tracker reports both and shows a “net premium” figure that is explicitly their sum, so the two components stay visible rather than being blended into an unattributable total.
The trap this creates
A premium seller can run a book that reports growing income every month while accumulating an increasingly large unrealised loss on assigned shares — because the option side keeps realising credits and the share side never realises anything until it is sold.
This is the specific failure mode covered in measuring a wheel honestly: premium collected looks like performance, and the shares sitting underwater are part of the same strategy.
What can go wrong
Counting open credits as income. The most common overstatement in options tracking.
Ignoring the mark on open positions. A short option that has tripled in value is a real loss even before you close it.
Comparing gross to kept. Two people, two definitions, one pointless argument.
Netting realised and unrealised into one figure. Wrong for income, wrong for risk, informative for neither.
Key takeaways
- Selling premium pays on day one and settles on day thirty — the credit arrives long before it is earned.
- An open short option is an asset and a liability at once; the liability's value is the cost to close.
- Realised P&L stays at zero until the obligation ends. That is the definition, not conservatism.
- Gross credit, net of buyback, and premium kept are three different numbers and most disputes conflate them.
- Report open premium and realised P&L separately: blended, the figure overstates income and hides exposure.
Check your understanding
1. You sold a put for $250. It is now worth $120 with two weeks left. What is realised?
2. Why does a broker show a negative mark on a short option you collected cash for?
3. Why should a dashboard keep open premium separate from realised P&L?