What is collateral when you sell options?
In one line: Collateral is the cash or shares your broker holds to back a sold option, so you can keep your promise to buy or sell 100 shares if you're assigned.
How it works
When you sell an option, you make a promise. Collateral is what backs it. Your broker holds it until the option is gone.
- Cash-secured put: you promise to buy 100 shares at the strike. The collateral is the cash: strike × 100. A $45 put ties up $4,500.
- Covered call: you promise to sell 100 shares at the strike. The collateral is the 100 shares you already own.
- In a margin account: the broker may hold only part of the full amount for a put. The promise is still for the full 100 shares. See Buying power reduction.
While it's held, you can't use that cash or sell those shares without closing the option first.
An example (hypothetical)
XYZ trades at $50 (an illustration, not a trade idea). Here are three ways to back a sold option, and what each looks like if XYZ falls hard.
| Promise | Collateral held | Premium | If XYZ falls |
|---|---|---|---|
| Sell a $45 put, cash-secured | $4,500 cash | $100 | At $30: assigned, −$1,500 + $100 = −$1,400 |
| Sell a $55 call on shares you own | 100 shares worth $5,000 | $80 | At $40: −$1,000 + $80 = −$920 |
| Sell a $45 put on margin | About $600 (varies by broker) | $100 | At $30: assigned, −$1,400, the same loss on far less collateral |
The loss in the last row is the same as the first. Only the collateral is smaller. That's why margin can make a position feel smaller than it is.
Why it matters for sellers
Collateral tells you the size of your bet. A premium of $100 on $4,500 of collateral is a $4,500 decision, not a $100 one. Size your trades by the collateral, not the premium.
It also tells you what you're giving up. Cash held for a put can't go anywhere else until the put ends. That's a real cost of the wheel strategy: your money waits on the promise.
Account types matter. In the US, IRAs usually allow covered calls and cash-secured puts but not uncovered options. In Canada, covered calls are widely allowed in a TFSA or RRSP; cash-secured puts depend on the broker. Options permissions differ by broker, so check yours.
Our keeping cash aside for assignment guide shows how much to hold back across several trades.
Questions
How much collateral does a cash-secured put need?
The strike times 100, per contract. A $30 put needs $3,000. Some brokers count the premium you collected toward it.
Do I get the collateral back?
Yes, when the option expires or you close it. If you're assigned on a put, the cash is used to buy the shares. On a call, the shares are sold.
Is less collateral on margin a good thing?
It lets you open more positions, but the loss per contract is the same. Many sellers set aside the full cash amount even in a margin account.
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