If I sell uncovered puts for a stock, will my broker (TD ameritrade) make me borrow the amount of money required to exercise as collateral, even my put is never assigned? Or, will my broker leave me alone UNLESS I am assigned? In other words, why exactly is margin required for naked option writing?? Is it only so you are able to be assigned?
I'm no expert, but I think you have put up some collateral [it's not free] you might start with the Margin calculator over at CBOE. don't most brokers charge something close to that amount? for the definitive answer, ask TD Ameritrade of course marc
The minimum margin is set buy the exchanges. The broker may be higher. For Equity and narrow Based Index options it is the greater of these 3 values. 100% option value + 20% of the underlying market value, less the out-of-the-money amount if any. or 100% option value + 10% underlying market value or put exercise price. or 100% option value + $250 per contract. The broker must be able to protect the firms capital should the underlying move against the position.
A better plan is to assume assignment and then calculate the margin situation you feel comfortable with. I allow a max of 10% margin (90% equity) assuming 100% assignment on SPY/IWM positions. So 1MM of SPY (100K borrow) 900K I consider my max exposure on assignment. Just because they let you does not mean you should
That is exactly what I do. I assume all my naked puts will be put to me. Better to prepare for problems before they arrive. Your 10% of account value for margin is very reasonable. My margin % fluctuates, depending on how much time is left in the upcoming contract month, how much I'm invested in that month, how deep otm the stocks are, what sector they are in (in terms of volatility), how strong their tech support is, how many are exposed to earnings report before exp day, how reasonably priced and financially healthy they are (in terms of their "recovery potential"), ect.... Bottom line.... I always "assume" I'm fully invested long at all times.... (and on margin).