How To Sell Put Options: Margin Requirement Explained

[@rockwelltradingservices]

Learn how to avoid margin calls here: kzbin.info/www/bejne/fYbIooedmdhohLc :)

[@mirevic5433]

Hello Markus, I'm reading your book at the moment (Complete Guide to Day Trading). On the part "Execute the Plan" you made a really good point, where you went on how you can get caught up in the "planning". And I think this idea must be pushed. The example with losing weight is just perfect. Thank you.

[@rockwelltradingservices]

Thanks for the feedback, Stefan. Much appreciated 😀

[@darrensteves]

Margin can be tricky. I learned that trading futures where the notional was huge. I only use spreads now with futures and mainly trade options.

[@philipple59988]

Off topic, but what do you do if you get assigned, and the stock keeps dropping? At the moment I am assigned with all of my capital, and the market is dropping below, this makes me doubt myself.

[@Bondibites]

Alot of people in the same boat. Need to hold and wait for upturn if you can afford to. No panicking....

[@RicardoHernandez-zr1pw]

Several options: sell for a loss and cut future losses, hold unto the risk and hope it recovers someday, sell covered calls and hope it recovers, buy more shares to average down and do wheel strategy but it might make your losses bigger

[@deborahgarcia1245]

Hi Markus, are you still selling puts in this environment? I find it harder and hard to discover a good plays... As IV is not as high as it used to and the risk of downside remains very high in this market, in general. Also, do you have your tradingview/stock screener/filters screenshot?

[@Myscentsei]

If one out right OWNS 100 shares of a stock, is it beneficial to do a LEAP Covered CALL a year or so out to collect high premium by setting a low but profitable strike?

[@rockwelltradingservices]

I'd rather sell short-term calls and do it over and over and over. This way, I have more control over the trade.

[@Myscentsei]

@@rockwelltradingservices Great!

[@rockwelltradingservices]

Awesome! I am glad that this helps. ;)

[@tocalfa1]

Hi Markus. I like your video as I like your Buying power on accounts!!! Shortly I will get it! I apreciate wheeal stratey but I still cant to use, but but but...I sell put options over the indexes. SP500. One time for month. To avoid margin call I simulate a safety price, that if overcame burns the account.For this reason I do not dive but I only wet my ankles ... I prefer brokers offering negative balance protection. It has to reduce small before to become large. Many thanks for your sharing content!!! Ciao!

[@rockwelltradingservices]

You are welcome! Thank you for commenting!

[@dagobaker]

Do you need lvl 4 options trading to get the 20% buying power requirement? Im lvl 3 and it shows 100% Bp necessary

[@rockwelltradingservices]

Traders with level 4 options trading approval may have access to reduced buying power requirements when selling naked puts. Typically, brokers may require only 20% of the full buying power for such trades for traders with the necessary approval level. If you currently have level 3 options trading approval and are seeing a 100% buying power requirement, it may indicate that you do not have the specific approval level needed to benefit from the reduced buying power requirement for selling naked puts. It's advisable to consult with your broker to understand the specific requirements and approval levels for different trading strategies.

[@maximnikulin6500]

Hello Markus, what broker is good for options&

[@Chris-dw6cu]

I have a positive cash balance but a negative margin balance. I think the margin balance is negative because I sold puts right? Does keeping a positive cash balance equal to your negative margin balance reduce your margin fees if you have sold puts? Or does it not matter?

[@rockwelltradingservices]

When you have a positive cash balance but a negative margin balance, it typically indicates that you have sold puts or taken on other positions that require margin. Here’s how this situation works regarding margin fees: 1. Negative Margin Balance: This occurs when you have sold puts (or taken similar positions) that require margin. The negative balance reflects the amount of margin being used against your cash balance. 2. Positive Cash Balance: Having a positive cash balance means you have available funds in your account. However, this does not directly offset the negative margin balance. 3. Margin Fees: Margin fees are typically calculated based on the amount of margin you are using. If you have a negative margin balance due to selling puts, you may incur margin interest charges on that amount. 4. Offsetting Margin Balance: While having a positive cash balance does not directly reduce your negative margin balance, it can provide you with the liquidity needed to cover any potential obligations if you get assigned on the puts. However, it does not eliminate margin fees. 5. Reducing Margin Fees: To reduce margin fees, you would need to either close some of the positions that are contributing to the negative margin balance or deposit additional cash to increase your cash balance relative to your margin usage. In summary, while a positive cash balance is beneficial for liquidity and can help manage risk, it does not directly reduce margin fees associated with a negative margin balance from sold puts. You would need to address the positions causing the negative margin to potentially lower those fees.

[@Chris-dw6cu]

@@rockwelltradingservices thanks so much for your clear and thorough explanation. It all makes sense now. It was difficult to find info on this particular situation on the net, as most articles assume negative margin balance is directly correlated with negative cash balance a result of borrowing from the broker to buy stock

[@rockwelltradingservices]

I am glad that this helps. This is available in our software in the PowerX Optimizer. You can ask questions there and it will instantly give you the best answers.

[@robertcliffort2354]

excellent that was my mistake.

[@petkuscinta9797]

Great video. Waste majority of margin accounts (in Australia anyway) are what I call short term (8 days in case of SAXO) borrowing. This means that traders with $100k should ever only sell options for up to $100k minusd fees to avoid margin call. Basically trat account as if there is no margin at all. Why? Because the margin is there only for one purpose!!! = Allow trader to deposit extra cash if assigned or purchased more that capital in account. In this case broker allows 8 days to use their money till deposit of cash (margin call happens). Only high net worth (we talking millions) people that have private concierge broker are allowed to have up to 100% loan that they can use for trading without marging calls. Another issue is that some "margin" accounts are called margin but the broker is charging % of so called "ongoing loan" even if you trade well within limits of your capital. Not on stocks but on selling options. The argument is that because they do not block your cash they consider selling puts as naked (not cash covered) hence they charge % on it.

[@rockwelltradingservices]

Great points! You're absolutely right-margin accounts can be tricky, especially with short-term borrowing like the 8-day terms you mentioned with SAXO. It's always wise to treat your account as if there's no margin available, selling options within the capital you have to avoid any surprises with margin calls. The market can move quickly, and brokers can be strict with their requirements, so staying conservative is key. And you're spot-on about the nuances with different brokers. Some brokers do charge fees for what they consider 'naked' positions, even when you’re within your capital limits. It's a reminder to always read the fine print and understand how your broker operates. For most traders, focusing on risk management and treating margin as a safety net rather than a resource to be fully utilized is crucial. Let's explore how to use these insights to fine-tune your trading strategy and avoid common pitfalls. Sound good?

[@tf628]

Love your accent ! But .... requirements and percentages still do not make sense. I am with etrade. I sold a few sept 2023 and jan 2024 TQQQ PUTS yesterday and today ( about 10K in "commitments" to be reserved in case the shit hits the fan and I get assigned ( which I want to ) . ( I go for the more conservative PUTS, less premium but better assignment price ) After I received the premiums , my "cash" balance actually went up by a bit and it says my margin balance is 0. Does the margin "kick in" ONLY if the underlying stock price goes down ? oh BTW trades also show in my "margin tab" as naked puts even though they are not ! I have the cash in the account. Can someone can explain this to me I am lost . TY

[@jasgap]

Then why have a margin account? Use a cash account

[@Pss321]

You can sell a put and to prevent margin money depleted you can buy far out of money put for lower price and and if you stock closes about the atrike price then u end of collecting premium minus the cost of put you bought..

[@rockwelltradingservices]

Thank you for sharing your thoughts here.

[@thomasd5488]

Maybe account size has something to do with it, but Charles Schwab reduces my BP dollar for dollar when I sell a cash secured put. If I sell one put contract with a $103.5 strike, my BP is reduced by $10,350 $10,350 is on hold.

[@nathandavis7962]

I don't use Schwab as my broker, but I've also noticed in my account that 100% of the strike when selling puts is held as collateral. That's kind of what I had expected. So I would really like to know why it's only about ~20% in this video? If anyone has an answer I'd be grateful to learn it.

[@thomasd5488]

@@nathandavis7962 When you have a large enough trading account, you can qualify for "Portfolio Margin". Ask your broker about it, and how to qualify for it.

[@thomasd5488]

@@nathandavis7962 " So I would really like to know why it's only about ~20% in this video? " Markus has "Portfolio Margin". With a smaller account, most of us has only regular margin. Collateral is dollar for dollar when selling cash secured puts, and 50% for buying most stocks and ETF's. When you have a LARGER account, you can qualify for "Portfolio Margin". Call your broker customer service, and ask them what you need, to qualify for "Portfolio Margin". They will be happy to tell you.

[@moviesurfer6456]

Hello Markus - What is a reasonable monthly amount I could generate selling puts or wheel strategy with $50K account?

[@allan-6604]

Easily $1k

[@citizenm9590]

​@@allan-6604how much will tax man eat from that 1K?

[@edwinhunnet2666]

@@citizenm9590base on your bracket

[@karinegasper3365]

Hi there, Do you have IBKR brokerage option on your software?

[@rockwelltradingservices]

You can use this in any broker. Please schedule a walkthrough so that you will learn more. Here is the link bit.ly/PXO_TOUR

[@omarghosn8655]

Warning traders about margin is so critical, I have felt that pain :( So with your $68k you can actually open FOUR (4) positions of 6 lots each theoretically, right? That would require $360,000 to fulfill...YIKES! But the broker will allow it because you are now at 66% margin utilization...about 10-15% below their margin call threshold. I'm assuming most brokers liquidate at around 75-80%....so even a slight movement in price and you could get liquidated - so although the account gives you 2X buying power for stocks, you can actually get in this case 4X leverage...or am I missing something?

[@SuperSupersoda]

Easiest way to avoid margin calls: most trading platforms require you to explicitly apply for margin buying power on options. Just don't ever apply. You can't ever get in trouble if your platform never allows you to use margins.

[@rockwelltradingservices]

Thank you for watching!

[@Bondibites]

Thanks Markus. Some weird comments happening. Troll time

[@rockwelltradingservices]

Always xD

[@jeremiahmiller4640]

Meow

[@davidlim8502]

Not a good example. No one sane will sell a naked put.

[@rockwelltradingservices]

Hi! This is based on my own experience. ;) Thank you for watching and commenting here.

[@rw1934]

reasons to do a naked put (1) To buy stock below the current price or (2) to earn a reasonable return on the cash deposit without taking risk greater than owning stock.

[@roccodimiccio5199]

finally went bankrupt eh