Maximum Amount Useable to Sell Put Options?

G

Gooby

Is there a limit on the amount of capital one can use to sell put options with? For example, if someone wanted to put $100 million up in order to sell a put option on an individual stock (read: not a market or index), is that realistic or is there a capital limit? (Capital limit in that, say, Warren Buffett can no longer make 40% on $20 billion dollars, too little liquidity, etc.)

What would you say the maximum limit realistically is?

Thank you.
 
Gooby said:
Is there a limit on the amount of capital one can use to sell put options with? For example, if someone wanted to put $100 million up in order to sell a put option on an individual stock (read: not a market or index), is that realistic or is there a capital limit? (Capital limit in that, say, Warren Buffett can no longer make 40% on $20 billion dollars, too little liquidity, etc.)

What would you say the maximum limit realistically is?

Thank you.
More...




The limit would be determined by the Sellers and Buyers.



:)
 
Sorry OptionGuru, I am a beginner/newb. I understand what you're saying, but is there a limit in terms of how much you can put up to risk on selling put options. I feel stupid, but I hope you can understand what I'm asking.
 
you are asking the maximum amount a person with $100 million could sell in puts?? Why the @#$% would a $100 million dollar account sell puts on stocks? Don't fight those instincts about feeling stupid...they are there to help you.
 
Gooby said:
Is there a limit on the amount of capital one can use to sell put options with? For example, if someone wanted to put $100 million up in order to sell a put option on an individual stock (read: not a market or index), is that realistic or is there a capital limit? (Capital limit in that, say, Warren Buffett can no longer make 40% on $20 billion dollars, too little liquidity, etc.)

What would you say the maximum limit realistically is?

Thank you.
More...

Realistically
-> There is no single number.
-> It depends on the conditions.
-> And black swans will always refute.
 
Gooby said:
Is there a limit on the amount of capital one can use to sell put options with?
Thank you.
More...

There are position limits imposed by the exchange. A position limit is the maximum number of contracts that any particular individual/entity can hold. The position limits are there to presumably prevent someone from manipulating the markets. These limits are typically very high.

Here are the CME position limits:
http://www.cmegroup.com/rulebook/files/position-limits-cme.xlsx
 
Every broker provides a specific margin requirement. Usually around 2.5 times premium or 20% of the full vulnerability. But this is not a game you want to be playing. Personally, if I sell puts on 10 stocks, I feel safe with only 10% margin use during a vicious downdraft. Some of those will be put to me sooner or later. With a long/short portfolio, I might consider more leverage, but you have to be conservative about these things. If leverage is the only way you can make money, you have no business in the markets. Just learn a little balance sheet analysis and you'll do far better.
 
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