What is buying power reduction (BPR)?
In one line: Buying power reduction (BPR) is how much of your account's buying power a trade ties up while it's open; for a sold put, it's the full cash in a cash account and a smaller, changing amount on margin.
How it works
Buying power is how much your account can put into new trades. Buying power reduction (BPR) is how much one trade uses up while it's open. Your broker shows it on the order preview.
For a sold put, BPR depends on the account:
- Cash account (cash-secured): the full strike × 100. A $45 put uses $4,500. Some brokers subtract the premium you collected.
- Margin account: less. A common starting formula for a stock put is about 20% of the stock's value, minus how far out of the money the strike is, plus the premium, with a floor of about 10% of the strike plus the premium. Brokers can and do ask for more. Check your broker's current rules.
Margin BPR isn't fixed. If the stock falls, it grows, sometimes fast.
For a Covered call, the shares already back the promise, so the call itself usually adds little or no BPR.
An example (hypothetical)
XYZ trades at $50 (an illustration, not a trade idea). You have $4,500. You sell $45 puts for $1.00 each. Then XYZ falls to $35 by expiry.
| Setup | BPR when you open | If XYZ ends at $35 |
|---|---|---|
| Cash account, 1 put | $4,500 | Assigned: −$1,000 + $100 = −$900 |
| Margin, 1 put | About $600, rising to about $1,700 as XYZ falls | −$900, the same loss |
| Margin, 7 puts with the same $4,500 | About $4,200 | 7 × −$900 = −$6,300, more than the account holds |
In the margin rows, the starting BPR looks small. The loss per put isn't. Seven puts on a $4,500 account is a promise to buy $31,500 of stock. When XYZ fell, BPR jumped, and a margin call would arrive well before expiry.
Why it matters for sellers
BPR measures what your broker holds. It does not measure what you can lose. For a sold put, the real risk is close to the full strike × 100, whatever BPR says.
So many sellers in the wheel strategy size every put as if it were cash-secured, even on margin. They use the lower margin BPR as a cushion, not as room for more contracts. Our cash vs margin account guide compares the two.
Account types change this. US IRAs usually require puts to be cash-secured. In Canada, covered calls are widely allowed in a TFSA or RRSP; cash-secured puts depend on the broker. Options permissions differ by broker.
Questions
Why is my BPR lower than strike × 100?
You're likely in a margin account, where the broker holds only part of the amount. The promise to buy 100 shares at the strike is still the full size.
Why did my BPR go up while the trade was open?
On margin, BPR moves with the stock. As a sold put goes deeper in the money, the broker holds more against it.
Does a covered call reduce my buying power?
Usually not by much, since the shares back it. The shares themselves already count against your account.
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