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How many puts can I sell? The full obligation rule, worked out

Size every short put as if you'll be assigned, because some will be. The rule is one line of math: your account times the share you're willing to put in one stock, divided by the strike times 100. Round down.

Options guide · 9-minute read · Updated 2026-10-27

The short answer

Contracts = (account × cap per stock) ÷ (strike × 100), rounded down.

The "cap" is the most of your account you'd put into any one stock, written as a decimal. With a $25,000 account and a 20% cap, you have $5,000 per stock. A $45 put needs $4,500, so the answer is one contract.

This is the full obligation rule. It sizes the trade by what you've promised to buy, not by the premium, and not by what your broker lets you do.

Why size by the obligation

When you sell a put, you promise to buy 100 shares at the Strike price. The premium is small. The promise is large. If the stock falls, the promise is what you'll feel.

Brokers sometimes let you sell more than you could pay for, especially in a margin account. That's a limit on what the broker will allow, not a measure of what's wise. The full obligation rule ignores it on purpose. Cash account vs margin account for selling options covers the account side.

The rule, step by step (an illustration, not a trade idea)

A hypothetical account of $25,000. You choose a cap of 20% per stock. That's a choice, not a standard; some sellers use less.

1. Money per stock: $25,000 × 0.20 = $5,000.
2. Cash per contract: strike × 100.
3. Contracts: $5,000 ÷ cash per contract, rounded down.

The $60 row matters. If one contract is more than your cap, the honest answer is zero. Not "just this once." Wait for a cheaper stock or a bigger account.

The second cap: everything at once

A cap per stock isn't enough. You also need a cap on all your open puts together.

If you have five stocks at $5,000 each, that's your whole $25,000 promised. In a broad sell-off, all five could be assigned the same week. Many sellers keep a part of the account uncommitted, for exactly that day. They choose a total cap well under 100%. See keeping cash aside for assignment.

The losing case, worked out

Same account, two ways to size the same trade: with the 20% cap, and with no cap, using all the cash the account can cover. You sell $45 puts for $1.00 on a made-up stock, XYZ, trading at $50. Then XYZ falls 30% to $35 and you're assigned.

Check the size against a real drop

The formula sets the maximum. Then test it:

1. Pick a hard drop for this stock: 25% or 30% is a common test. Use more for a jumpy stock.
2. Work out the loss: (strike − dropped price) × 100 × contracts − premium.
3. Compare with your account. If that one loss is more than you'd accept from a single stock, cut the contracts.

For XYZ, one contract and a 30% drop costs about $900, or 3.6% of the account. Five names doing that at once would cost about 18%. That second number is the one to look at hard. Drawdown math for option sellers works it through.

Covered calls follow the same rule

A Covered call needs 100 shares per contract, so the size is set when you buy the shares. Apply the cap to the shares: 100 shares of a $50 stock is $5,000, which fits a 20% cap on a $25,000 account. The call doesn't add risk on the way down. It removes upside above the strike.

So in the wheel strategy, the put step decides the size of everything that follows. Get it right there.

Small accounts and the round-down problem

With a small account, the round-down bites. A $5,000 account with a 20% cap has $1,000 per stock. That's a $10 strike at most. The honest options:

• Accept a bigger cap on fewer stocks, and know that one bad stock is a big share of your account.
• Use cheaper stocks, and check that they're businesses you'd hold. Cheap isn't the same as sound.
• Wait and save. Sizing too big is the fastest way to make a small account smaller.

Account note: in Canada, covered calls are widely allowed in a TFSA or RRSP, while cash-secured puts depend on the broker. In the US, IRAs usually allow both at a basic level. Options permissions differ by broker, so check yours.

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