Naked Put: Selling a Put Without Setting Aside the Cash

Sell to open, 1 contract, $30 put, limit $0.90. The ticket shows a credit of $90. Most platforms add a line for buying power effect. That second number is the one to read. It’s the margin your broker will hold against the position, and for an uncovered put it is far smaller than the $3,000 you’d owe if the shares were put to you.

Working out the requirement

The standard formula for an uncovered equity put takes the larger of two tests. Brokers treat it as a floor. Many add a house percentage on top. Here’s a hypothetical stock at $32 and a $30 put sold for $0.90.

A cash-secured put on the same strike sets aside $3,000. The naked version holds $530. The difference, $2,470, stays available for other positions. That freed cash is why traders sell puts naked. It’s also the danger, since the money may already be committed elsewhere on the day you get assigned.

Where it sits on the option chain

The chain shows puts on one side of the strike column, with bid and ask for each. A seller usually gets something near the bid. Nothing on the chain says “naked.” The same $30 put, at the same $0.90, is a cash-secured trade in one account and an uncovered one in another, and the difference only appears after you choose the account and the platform works out what to hold against it, which is why two traders reading an identical row can be carrying very different amounts of risk relative to their cash. Strikes further below the stock price pay less. They also carry a larger out-of-the-money deduction, so the requirement falls with them, down to the 10% minimum test.

The loss the requirement doesn’t show

If the stock goes to zero, you buy 100 worthless shares at $30.

That’s more than five times the margin held. Nothing about the requirement caps the loss, and when a stock drops sharply the account has to absorb the gap from other equity or through a forced close. The put’s break-even price is $29.10 at expiration. Below that, each dollar of decline costs $100 a contract.

Why the number moves

The formula uses the current stock price and the put’s current value. So it gets recalculated. Say the hypothetical stock slides from $32 to $30 and the put is now quoted at $1.80.

The stock fell about 6%. The requirement rose about 47%, from $530 to $780. Falling prices push the formula up from both ends, because the out-of-the-money deduction shrinks while the premium term grows, and the column on how a short put’s margin requirement moves follows that chain further into a real selloff.

Who can sell one

You need a margin account. A cash account can only sell puts that are fully secured, a point covered in whether you need a margin account to trade options. Brokers also reserve uncovered writing for their top approval levels, and approval isn’t automatic.

What people get wrong

• Treating the margin requirement as the amount at risk.
• Assuming the requirement is fixed at entry.
• Selling several naked puts because each looks small, when a broad market drop can raise all of them on the same afternoon and turn a comfortable account into one facing a margin call before any single position has been assigned.
• Forgetting that assignment converts the put into a stock position that then needs its own maintenance margin.

Related terms

A cash-secured put is the same trade with the full strike value parked in cash. A covered call is its closest cousin on the call side. A margin call is what follows when the requirement outgrows the equity behind it, and on a short put that sequence can run its course inside one trading session. More on both sits in the options section.