Naked put margin

Discussion in 'Options' started by chengas123, Jun 15, 2010.

  1. I want to understand when writing a naked put how much the price of the underlying would have to change in order to face a margin call.
    I use Interactive Brokers. Do they have any type of margin simulation where I would be able to see how much margin is required under different conditions?
    Assuming the best route is to calculate it manually, I'd like to post an example here and have my math double checked.

    From the IB website:
    Short Naked Put Index Options
    Put Price + Maximum((15%[3] * Underlying Price - Out of the Money Amount), (10% * Strike Price))

    Let's use a SPY put leap as an example:

    It's trading at $.21 with a strike of $20 and the underlying trading at $110.

    So would the formula be:
    $21 + Maximum((.15 * $110 - $90), (10% * $20))
    = $21 + Maximum(-$73.5, $2)
    = $23

    So I would need $2 to cover the margin in addition to the $21 generated by the sale of the option. Is that right?

    IB tells me N/A for commission and margin if I preview an order (screenshot attached). Any idea what's up with that?
  2. Dont do naked put with IB. ever.

    One word.

    Auto Liquidation in premarket
  3. Why are you selling those. Seems like little time premium so long before expiration
  4. 1) Nothing is up with that.
    2) You're not supposed to short-sell, long-dated, deep-out-of-the-money options, EVER. They are only to be bought as a "lottery ticket". :)
  5. I appreciate everyone's input on the trading strategy. I'm still interested in the answer to the original question to make sure I understand correctly the way that IB calculates margin even if you're not a fan of the example I picked :)

    What I mean is why is the commission and margin showing as N/A? Surely IB has to be charging a commission?
  6. Margin requirement is $221 less the premium received ($21) so SMA debit amt is $200
  7. 1) ?....(0.15)(110-90) equals $3, not -73.5. :eek:
    2) $21 + Maximum ($3, $2) equals $24. :p
  8. stoic


    The margin manual from CBOE margin requirement

    The greater of these values for Broad Based Index:

    100% option proceeds +
    15% Underlying market value, less Out-of-the-Money if any.


    100% Option proceeds +
    10% Underlying market value or Puts Exercise price.

    I can't speak for IB but every brokerage I've ever worked for also had a minimum of:
    100% option proceeds +
    $250 per contract.

    The CBOE Margin Manual can be found in PDF @
  9. >> $21 + Maximum((.15 * $110 - $90) <<

    Multiplication takes precedence over subtraction :)

    Since the answer is negative, the maximum does not apply.
    However, since the example is FUBAR, you can blame it on the OP

  10. If you're going to use $21 as the premium then you're going to have to use dollars in the rest of the calculation rather than pts. Doing it via pts, the correct calculation for the "maximum" would be:

    .21 + Maximum((.15 * $110 - $90)
    = .21 -$73.50,)

    Since this is a negative number, the "maximum" does not apply and you then use the "minimum" calculation which is 10% of the strike plus the premium received or $2 +.21 for a margin requirement of $221. Since the premium can be used to reduce the margin requirement, the SMA debit amt is $200

    #10     Jun 15, 2010