If i have $50k in a margin account,can i write puts that total $100k,thereby using the 2 to 1 margin?For example,i write a put with an exercise price of 20.With $50k,i'd be able to write 25 contracts and keep the $50k in cash in the account to cover the possibility of having the stock put to me.So since margin accounts allow 2 to 1 leverage for overnight positions,my question is would i be able to write 50 contracts,instead of 25,with the $50k in cash in the account?Thanks.
Selling puts
- Thread starter NasdaqTrader
- Start date
I'm not sure you understand margins for options. When you write a put in a retail account, you need to put up 20% of the cash for the strike. In other words if you sold a put on a stock with a 100 strike, this would be the same as sell 100 shares of a $100 stock which is $10,000, so your margin for that put would be $2,000. So it completely depends on the strike that you use. The lower the strike, the more puts you can write. With your 20 strike you would put up $400 per put. With $50,000 you could sell 125 puts on a 20 strike. Keep in mind different firms have slightly different margin requirements. Some make you put up 25% for naked options. Hope this helps.
So if i sell 125 puts on a 20 strike with $50k in the account and i get assigned a total of $250k worth of stock to buy,i assume i'll get a huge margin call,and if so,how much?
Actually you can do more, assuming your broker has given you full trading privileges. At thinkorswim the margin requirement for naked puts reads:
The current marked-to-market value of the option plus 20% of the underlying stock less any amount the option is out-of-the-money.
So you can get over 4:1 leverage if desired. Not a good idea to go so exposed IMHO, but it's a free country.
The margin requirement for a short naked option is 20% of the strike price times the number of contracts times 100, not 100%. Also, the net credit received will offset the amount of margin required for the sale.
Hence, using your example, the gross margin requirement on 25 contracts would be $10,000, while it would be $20,000 on 50 contracts. Assuming you received a $1.00 net credit per contract, the net margin requirement would be $7,500 on 25 contracts and $15,000 on 50 contracts.
Well you will have maintence margin on top of your initial margin and that varies widely from broker to broker. So if your position goes against you, you will more then likely have to put up more cash while the stock is dropping.
You just sell the stock the day after you are assigned.
No broker in his right mind would let someone with $50,000 in his account sell 125 puts.
More likely, you'll be allowed to sell 3 or so at once.
When I sold options years ago, my broker required $15,000 per option in the account. It may have changed a little since then, but don't plan on doing 125.
