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To: AmericanVoter who wrote (164)	6/13/2000 5:03:00 PM
From: PAL	Read Replies (3) \| Respond to of 1115

Amein: The collected premium can be used as collateral, but becareful: there is a one day settlement such that the day after you sold the short, the money is not there yet. Many brokers do not enforce this shortgae since the fund is coming the next day. Let us use an example: sell 1 short put jan02/200 qcom at 120. stock is at $ 80/share. margin requirement under the old method: 20% of $ 8,000 plus $ 12,000 = $ 1,600 + $ 12,000 = $ 13,600. In essence, a cash inflow of $ 12,000 and you need $ 13,600. Thus the the need for your own asset if just $ 1,600. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Under the new method, the margin requirement is: 20% of $ 20,000 (strike price times 100 shares) = $ 4,000 plus $ 12,000 = $ 16,000. this is a difference of $ 2,400 per contract. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Under edamo's example, his $ 1M is a good coverage should he be assigned, and enough margin coverage for 50 contracts. Under current method: 50 times $13.6K = $ 680,000 while under the new method: $ 800,000. Do not forget that the risk associated with DITM short put where the extrinsic value is negligible, you can be assigned early. Therefore, that $ 1M cash is a safe cushion. Good Luck to you Paul