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EDUCATION ONLY

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The seller of a put option must have collateral in his brokerage account before selling a put option.

He is selling a Microsoft put option with $184 share price. The investor elects $180 strike price and deposits $18,000 in his brokerage account as collateral.

The investor collects the option premium of $100 when he places the sell order.

(1) The Microsoft share price is $181 at maturity date.

The investor recovers the $18,000 collateral since the share price is higher than the $180 strike price.

(2) The Microsoft share price is $175 at maturity date.

The investor loses the $18,000 collateral since the share price is lower than the $180 strike price.

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