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When writing a put option does your account have to be funded so that if the buyer exercises the right to sell you can meet your obligation, or can you write the put option without the funds to meet the potential obligation?

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Ask your broker who carries the risk of you not meeting your obligations when the time comes. –  Dilip Sarwate Apr 12 '12 at 12:20
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2 Answers

There is no standard answer to this question. It will depend entirely on what kind of options activities your broker offers and what your broker has approved your specific account for. Consider:

  • Most brokerage accounts, by default, don't permit options trading at all. You typically need to ask/apply for it.

  • Even with options trading, many brokers, by default, only permit common limited-risk strategies like buying puts and calls, and nothing riskier or more complicated, again, until you ask/apply for it. My own broker required me to answer a few short questions about the risks of certain option strategies before approving my account for writing puts.

  • Even in providing access to writing options, brokers are likely to require a covered position. Some brokers don't permit any naked option writing.

  • Even if a broker does provide naked writing, they are still likely to require some cash collateral or sufficient equity margin in your accounts, and it may vary from one place to the next, from one customer to the next, from one underlying security to the next, from one exchange to the next.

Here's one example of one broker's option trading levels and margin requirements. Of course, your broker will vary, so call your broker for a specific answer.

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Yes.

This is called a Naked Put:

Your goal is most likely to collect the premium and pray the underlying security does not fall in price. You do not want to be assigned. Requires a margin account.

In contrast to the Cash Secured Put or Covered Put:

Your goal is to acquire the underlying security at a lower price, plus a discount from premium paid, or let the option expire. This is a good strategy, because the money securing the put typically sits in an interest bearing (sweep) account

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