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I'm calculating margin on put selling options using TDAmeritrade's formula. It can be found here on p.11: https://www.tdameritrade.com/retail-en_us/resources/pdf/AMTD086.pdf

Using the first example and putting it into a spreadsheet, I get the correct result of $10,500:

Action: Sell six uncovered puts on PQR Corp.
Deliverable Per Contract: 100 Shares of PQR 
Price of Security: $81.25
Market Strike Price: $80
Options Premium: $2.50

20% margin requirement calculation:
Percentage of Stock Value:
20% x [$81.25 x (6 x 100)] = $9750

Out-of-the-Money Amount:
($80 – $81.25) x 600 = -$750

Current Market Value of the Option:
$2.50 x 600 = $1500

Total Requirement $10500

But when I use the following numbers, the 2nd part is larger (26,400) than the 1st (22,680), which results in a negative margin. Ultimately, that results in a negative return, which really isn't the case.

Price of Security: $189
Market Strike Price: $145
Options Premium: $1.20

20% x [$189 x (6 x 100)] = $22,680
($145 – $189) x 600 = -$26,400
$1.20 x 600 = $720
Total Requirement (22680-26400+720) = -$3000

Anyone see what I'm doing wrong?

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As the referenced document says, there are 3 formulas, and you need to use the formula which results the greatest margin requirement. In your case, you need to use the 10% formula:

Percentage of Exercise Value:
10% x [$145 x (6 x 100)] = $8700

Current Market Value of the Option:
$1.20 x 600              = $750
--------------------------------------
Total Requirement          $9450
  • Basically, if I get a negative margin, skip step 2 (use 2nd formula)? Just to be clear, 20% and 10% are the margin requirements from the broker on that stock right? This number can greater than 50%. Does their formula factor that in? Using the 2nd formula, if the margin requirement is 20%, it results in $18,120 margin. – 4thSpace Aug 19 '17 at 20:25
  • You need to calculate the possible margin requirements based on the provided formulas, and your margin requirement will be the highest. Based on the formulas 10% and 20% look like margins, but they also stated that few equities would have higher maintenance margin, which will affect the short put option's margin too, but do not say anything about calculation. So basically the formulas you see does not factor that in, but if you write a put option of an equity with a high maintanance margin, you'll get a higher margin requirement of course. – ooffchee Aug 19 '17 at 20:40
  • Actually, a lot of equities require margin higher than 20% (i.e., pharmaceuticals and other stocks). For which ever formula I'm using, would changing TDAmeritrade's 10% or 20% to 55% to 70% to match the margin being reported by my broker correct? – 4thSpace Aug 19 '17 at 20:44
  • Probably no, because a stock cannot have different margin requirements, the use of 20% or 10% is depends on the strike price of the written option, you may not be sure about the meaning of these percentages. Also it seems to me, that your broker is not TD Ameritrade (correct me if i'm wrong), and in this case you need YOUR broker's formulas – ooffchee Aug 19 '17 at 21:32
  • No - I'm not with TD Ameritrade. If the only variable is margin requirement, which is dependent on the stock, isn't there a generic formula for calculating return on put option selling? Or is everything dependent on the broker. – 4thSpace Aug 20 '17 at 15:36

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