Options Academy
Cash Secured Puts 106: Advanced Selling (Naked Puts)
Ready to graduate? We discuss "Naked Puts" - selling on margin. Learn the Regulation T rules, leverage risks, and how to boost ROIC without blowing up.
Cash Secured vs. Naked
Cash Secured: You have 100% of the cash ($10,000 for a $100 stock). Safe, no leverage.
Naked (Margin): You only put up a fraction of the value as collateral (e.g., $2,000). Leveraged, higher risk, higher ROC.
Note: "Naked" sounds scary, but if you have the cash elsewhere (e.g., in T-Bills), it is just capital efficient.
Regulation T Margin Rule
How much margin do you need? The Fed has a formula:
Requirement = 20% of Stock Price + Put Premium - OTM Amount.
Example: Stock $100. Sell $90 Put for $1.00.
20% of $100 = $20.
Premium = $1.
OTM Amount = $10 ($100 - $90).
Margin = $20 + $1 - $10 = $11 per share ($1,100 total).
Compare $1,100 margin vs $9,000 cash secured. That is 8x leverage.
The Stress Test
Before selling naked, ask: "If the stock drops 20% tomorrow, will I get a Margin Call?"
Always keep 50% of your buying power free. Never max out your leverage. The market can remain irrational longer than you can remain solvent.
Key takeaways
- Naked Puts use Margin to free up capital.
- Reg T Rule: Approx 20% collateral required.
- Leverage boosts ROI but introduces Margin Call risk.
- This concludes the Chapter 3 Cash Secured Put Masterclass.
Series
Cash Secured Put Masterclass
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