Elmer, Gary -- seems like cash-backed puts should be legal in an IRA account but they're not. Just wanted to add that most brokers only require 25-30% of the price of the underlying stock as cash margin. If the put is out of the money, they even subract out the amount by which it is out of the money, but usually have an absolute minimum of 10% of the stock value, even if the stock is WAY above the exercise price.
So, for example, with my broker:
Margin to sell 10 AMD June 17.5 puts = 25% * 1000 share * 17.8125 =
$4453. But from this subtract 0.3125*1000 (312.50), since AMD closed at 17.8125.
So I could put $4,141 cash into the account, write the 10 puts and collect $625 (5/8 close). I'll have a cash balance of $4,766 earning interest while I wait for the puts to (hopefully) expire. Personally in this case I would prefer to write the July 17.5's (closed at 1.625) but look to buy them back if they lose over half their value.
On a daily basis, the cash balance required to maintain the position is 25% of the stock price, minus the amount out of the money, plus the current value of the puts I am short.
Most brokers require a reasonable amount of liquid assets and a year or two experience buying and selling options before they'll let you in on the option writing game, but I agree with Elmer, its better than risking 100% of your capital on calls.
Petz |
