Naked put margin calculator (the standard formula)
How much money does a naked put really tie up? Less than you think on day one. Then the stock drops, and the number grows fast. See both, in dollars, before you sell.
How it works: the standard formula for one short put takes the bigger of two numbers, per share. A: 20% of the stock price, minus how far the stock is above the strike (the out-of-the-money amount), plus the put's current price. B: 10% of the strike, plus the put's current price. The bigger one × 100 is the margin for one contract. A cash-secured put sets aside the full strike × 100 instead. The formula uses today's stock price and today's put price, so it changes every day the trade is open. Brokers can, and often do, ask for more than this.
Why the margin jumps when the stock falls
Two things move at once. As the stock drops toward the strike, the out-of-the-money amount you get to subtract shrinks to zero. And the put you sold gets more expensive, and its price is added in. In the default example, a drop from $100 to $85 takes the margin from $1,700 to $2,800, while the trade is already $900 in the red. That is the worst time to be asked for more money. If you can't cover it, the broker can close the put for you at that price and the loss becomes real. See cash-secured vs naked puts.
Less money tied up, same risk
Margin lets you sell the same put with far less money set aside. It does not make the put any less risky. If the stock goes to zero, you lose the strike minus the premium, × 100, either way. The danger is selling five puts on margin with the money that would cover one cash-secured. Then a normal drop can wipe out the account. In the wheel strategy, most people sell puts cash-secured so they can always afford the shares. If you use margin, size the trade as if it were cash-secured. More in I used margin to sell puts.
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