Put writing and margin requirements

[Kunz78]

Hi everyone,

I have a noobie question here.

If I have a reg t margin account with IB, and I sell 10 put contracts of 10 different stocks with a combined strike value of 100.000$

Would an account of 50.000$ avoid any risk of margin calls considered that even if I would be assigned on all stocks my overnight margin requirement would be 50% of strike value?

Hope I made it clear....

Thanks!

 

[Overnight]

Hi everyone,

I have a noobie question here.

If I have a reg t margin account with IB, and I sell 10 put contracts of 10 different stocks with a combined strike value of 100.000$

Would an account of 50.000$ avoid any risk of margin calls considered that even if I would be assigned on all stocks my overnight margin requirement would be 50% of strike value?

Hope I made it clear....

Thanks!

I hear selling naked puts is a really bad idea.

 

[Kunz78]

I hear selling naked puts is a really bad idea.

Thanks for the answer,

But is this considered selling naked puts?

Having the funds for an eventual purchase? Even if on margin?

 

[Overnight]

Thanks for the answer,

But is this considered selling naked puts?

Having the funds for an eventual purchase? Even if on margin?

That's a question for the options gods around here. But from what I understand, writing (selling) puts without an underlying position is considered "naked".

 

[Bum]

Hi everyone,

I have a noobie question here.

If I have a reg t margin account with IB, and I sell 10 put contracts of 10 different stocks with a combined strike value of 100.000$

Would an account of 50.000$ avoid any risk of margin calls considered that even if I would be assigned on all stocks my overnight margin requirement would be 50% of strike value?

Hope I made it clear....

Thanks!

Not very likely you'd get a margin call unless you're selling puts on very speculative stocks or the market really crashed, which is possible.

BUT, "avoid any risk of margin calls" ?........NO!

You're buying stock on margin when your broker allows 50% of actual funds needed.
So you now have $100K of stocks in your account that you purchased with $50K. What if they all drop by 50% after assigned? Now your account has a net value of $0.00. Broker will margin call well before you reach this level.

 

[spindr0]

If all of your puts are exercised, you'll buy $100k worth of stock. However, you received premium for the short puts so your acquisition cost will $100k less the total amount of premium received.

To keep it simple, let's ignore the premium. If you buy $100k of stock with $50k, you are on margin. If the positions decline enough, the minimum margin maintenance requirement level comes into play. If it's 25%, it is 4/3 times the debit balance which is $66,667 . Margin is equity over market value (16,667/66,667). Below that price, you'll receive a margin call.

 

[Bum]

Thanks for the answer,

But is this considered selling naked puts?

Having the funds for an eventual purchase? Even if on margin?

Yes, it's considered "selling naked puts" because you have no protection.

Example:
Naked........Sell $90 put on a $100 stock. Losses continue until stock drops to $0.
Protection......Sell $90 put on a $100 stock but also buy $80 put. Losses capped when stock drops below $80.

 

[spindr0]

That's a question for the options gods around here. But from what I understand, writing (selling) puts without an underlying position is considered "naked".

AFAIC, the primary reason for selling a naked put is to acquire a stock that you want to own at a lower price. Other than that, the R/R is asymmetric and lousy.