Writing cash-secured puts

Writing cash-secured puts

An option strategy to avoid using a margin account. Instead of depositing margin with a broker, a put writer can deposit a cash balance equal to the option exercise price, and can avoid additional margin calls.

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Writing Cash-Secured Puts

The act of writing a put option with the intention to avoid a margin account. Because a put writer is obligated to buy the underlying should the option buyer exercise the option, the writer must have easily available cash in order to cover the exercise. Rather than borrowing this money from a broker, the writer deposits with the broker a cash amount equal to the exercise price of the option. This way, the option is immune to margin calls.

Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved