I'm trying to back test some option sale strategies. I am just making up numbers here. But let's say I have an account balance of $100, and a stock with a price of $10 will fetch me $1 if I sell a put exactly at the money. Can I essentially sell 10 puts ($100 divided by $10 price of stock)? Or can I sell MORE than 10 puts because the $1 I get upon writing each put gets credited to my account? Or is the number I can sell unrelated to either of these? Yes I know 1 option is generally for 100 shares. And yes I know you can't have a fractional option, the numbers are just for simplicity purposes to ask/show the general point. Thanks.
20% of strike + premium - OTM amount. If it hasn't changed lately - Strategy based has a minimum of 10% + premium. The broker can establish a higher minimum. Many will also have a suitability requirement for the strategy. Broad-based index options are lower. You'll notice LEAPS are marginable - forget about ever finding a broker that will allow it.
That "CBOE Margin Manual" document is good, a classic, but it's now more than 22 years old Isn't here any newer versions of it available from CBOE? Update: found a more recent version from November 30, 2021 : https://cdn.cboe.com/resources/membership/Margin_Manual.pdf
CostBasis = Strike - Premium Strike=10 (ATM): you can open 100 / CB = 100 / 9 = 11.11, ie. practically 11. Strike=9: you can open 100 / CB = 100 / 8 = 12.5, ie. practically 12. ...
Wait, I was looking at Earth Imperator's math, that makes sense to me. ETJ, were you saying I need to maintain something like only 20% of that amount as margin?
The formula I provided is used for "Cash-Secured Put" trading (ie. short selling a Put) in a Cash Account. You can find it also in the table of tradestation.com (there it's called "Cash-Covered Put") under the column Cash Accounts: https://www.tradestation.com/pricing/options-margin-requirements/