398 Part Ill: Put Option Strategies 
The collateral requirement for the naked put write is the same as that for any 
naked equity option: 20% of the stock price, plus the option price, less any out-of­
the-money amount, with an absolute minimum requirement of 15% of the stock 
price. 
Collateral Requirement - Naked Put 
20% of stock price (.20 x 500 x $50) 
Plus option premium 
Less out-of-the-money amount 
Total collateral requirement 
$5,000 
1,750 
0 
$6,750 
Note that the actual premium received by the naked put seller is $1,750 less com­
missions of $100, for example, or $1,650. This net premium could be used to reduce 
the total collateral requirement. 
Now one can compare the profitability of the two investments: 
Return If Stock Over 50 at Expiration 
Stock sale {500 @ 50) 
Less stock commission 
Plus dividends earned until expiration 
Less net investment 
Net profit if exercised 
Net put premium received 
Dividends received 
Net profit 
Covered Write 
$25,000 
300 
+ 1,000 
- 21,150 
$ 4,55_0 
Naked Put Sole 
$1,650 
0 
$1,650 
Now the returns can be compared, if XYZ is over 50 at expiration of the LEAPS: 
Return if XYZ over 50 
(net profit/net investment) 
Naked put sale: 24.4% 
Covered write: 21 .5% 
The naked put write has a better rate of return, even before the following fact 
is considered. The strategist who is using the naked put write does not have to spend 
the $6,750 collateral requirement in the form of cash. That money can be kept in a