Sizing Covered Calls and Cash-Secured Puts - Buying Power vs Real Risk
Reviewed by Leon Moyer - Published October 9, 2026 - Last reviewed October 9, 2026
In this lesson
Size a covered call or short put by its stock exposure, and explain why a lower margin requirement does not lower the risk.
Covered calls and cash-secured puts should be sized by the stock you could end up owning, because their worst case is close to that of owning the shares outright. The premium is small next to that risk, and the buying power a broker sets aside can be smaller still. Neither number is a safe guide to how many contracts to trade.
The previous lesson, How Many Contracts to Trade, sized spreads whose worst case is a few hundred dollars. Here the worst case is thousands per contract, which changes the question from "how many fit my risk budget?" to "how much of this one stock do I want to own?"
Why are covered calls and cash-secured puts large-risk positions?
Both strategies are often described as conservative, and they are less risky than an uncovered call. But their losses are large, and that needs to be stated plainly:
- A cash-secured put is a short put backed by enough cash to buy the shares. Its maximum loss is the strike minus the premium, times 100, if the stock goes to zero.
- A covered call is 100 shares plus a short call. Its maximum loss is the share cost minus the premium, times 100, also if the stock goes to zero.
As Buyers and Sellers showed, the seller collects the premium and takes the obligation. The premium cushions the loss a little; it does not cap it.
One short XYZ 48 put: what it ties up and what it can lose
Per contract
With XYZ at $50 and 30 days left, the model price of the 48 put is $0.81. Selling one brings in $81, can lose $4,719 before fees, and in a cash account ties up $4,800.
How much buying power does a cash-secured put use?
Buying power is your broker's figure for how much more you can open with the cash and collateral in the account. Each position reduces it by the broker's requirement for that position. For the positions in this lesson, the exchange rules set the minimum (as Cboe listed them in October 2026):
- Cash-secured put: "Deposit cash or cash equivalents equal to aggregate exercise price or escrow agreement," per Cboe's strategy-based margin page. For one 48 put, that is $48 x 100 = $4,800. Brokers differ on whether the premium received can count toward it.
- Covered call: no requirement on the short call, because the shares cover it. The shares themselves cost their full price in a cash account. In a margin account, Cboe lists a 50% initial and 25% maintenance requirement on the stock, so 100 shares at $50 need $2,500 at first.
- Uncovered (naked) short put in a margin account: "100% of option proceeds plus 20% of underlying security/index value less out-of-the-money amount, if any," with a minimum of the proceeds plus 10% of the put's exercise price, per the same Cboe page. FINRA Rule 4210 sets the same structure for listed stock options.
For the 48 put, the margin formula gives $81 + ($1,000 - $200) = $881, which is above the $81 + $480 minimum. Selling puts this way needs margin approval and usually a higher options level than cash-secured puts, and brokers can require more than these exchange minimums. Check your broker's requirements.
How many cash-secured puts can you sell?
Here is where buying power and real risk part ways.
Worked example
The same puts, cash-secured or on margin
You have a $25,000 account and want to sell XYZ 48 puts at $0.81, with XYZ at $50.
- Cash-secured: $25,000 / $4,800 = 5.2, so 5 puts. If all are assigned you buy 500 shares for $24,000, about all of the account. Maximum loss: 5 x $4,719 = $23,595.
- On margin: $25,000 / $881 = 28.4, so 28 puts. If all are assigned you must buy 2,800 shares for $134,400, 5.4 times the account. Maximum loss: 28 x $4,719 = $132,132.
At $40, the five cash-secured puts lose $3,595. The 28 margined puts lose $20,132, most of the account, and the requirement on them would have risen long before XYZ got there. The margin case shows what buying power permits, not what anyone should do.
Illustrative and hypothetical. The ticker and prices are invented for teaching, and the figures exclude commissions, fees, margin interest and taxes, which reduce real results. Past or hypothetical outcomes do not indicate future results.
5 cash-secured puts or 28 on margin, at expiration
Hover or tap the chart, or focus it and use the arrow keys, to read any price.
Open this trade in the free calculatorShow as table
An uncovered short put on margin risks far more than its margin requirement. The XYZ 48 put sold for $0.81 can lose $4,719 per contract before fees ($48 x 100 minus the $81 premium) if XYZ goes to $0, against $881 set aside at the start. The requirement is recalculated as the price moves, so it rises while the position is losing. As Cash vs Margin Accounts for Options Trading covered, a broker can then issue a margin call or sell positions without contacting you, and you owe any deficit the account cannot cover.
How should you size covered calls and cash-secured puts?
Size them by notional exposure: the value of the stock you are, or could be, holding. Notional exposure equals the strike (or share price) times 100 times the number of contracts. Then compare it with a single-stock limit from your plan.
- Write down a single-stock limit. For example, no more than 20% of the account in any one stock, which is $5,000 of a $25,000 account. That is an illustration, not a recommendation.
- Count options and shares together. A cash-secured 48 put is $4,800 of potential XYZ. If you also hold XYZ shares, add them.
- Size the position to fit. One cash-secured 48 put ($4,800) fits a $5,000 limit; two ($9,600) do not, however much buying power is left.
- Do the same for covered calls. 100 shares at $50 is $5,000 of exposure, so one covered call lot fits. Selling the 52 call for $0.99 brings in $99, but the position can still lose $4,901, so it counts as the full $5,000.
A per-trade risk budget like the one in the previous lesson cannot hold these positions; one contract's maximum loss is many times a 2% budget. The single-stock limit takes its place, and the maximum loss still belongs in the plan so you know what a crash would cost.
Why do brokers' buying power numbers differ?
Exchange and FINRA rules set minimums. Brokers set "house" requirements on top, may treat the premium differently, and some offer portfolio margin, which uses a different, risk-based method for approved accounts. Two accounts holding the same puts can show different buying power. The risk of the puts is the same in both. Read your broker's margin documentation before relying on its figure.
Check your understanding
A cash-secured put has a $40 strike. How much cash does the exchange rule require per contract, before any premium is counted?
Show answer
$4,000. The Cboe rule is cash equal to the aggregate exercise price: $40 x 100 shares.
Your broker shows that one short put uses only $881 of buying power on margin. Does that mean the trade can only lose $881?
Show answer
No. The requirement is collateral, recalculated as the stock moves. The put can still lose the strike minus the premium, times 100: $4,719 for a 48 put sold at $0.81, before fees.
Your plan limits any one stock to $5,000. You own 50 shares of XYZ at $50. Can you also sell one cash-secured XYZ 48 put?
Show answer
No. The shares are $2,500 of XYZ and the put adds $4,800 of potential XYZ, for $7,300, over the $5,000 limit.
Key takeaways
- Covered calls and cash-secured puts can lose nearly as much as owning the stock; the premium only cushions the loss.
- A cash-secured put needs cash equal to strike x 100; an uncovered put on margin needs much less, but has the same risk.
- Lower requirements let you sell more contracts, not safer ones. A falling stock raises the requirement while the position loses.
- Size these positions by notional exposure against a single-stock limit, counting shares and options together.
Common questions
How much buying power does a covered call use?
None for the short call, because the shares cover it. The shares cost their full price in a cash account; in a margin account, Cboe's minimum is 50% of their value at first, so 100 shares at $50 need $2,500. Brokers can require more.
How many cash-secured puts can I sell?
As many as your cash covers at strike x 100 each, but a better limit is how much of that one stock you are willing to own. A $25,000 account can secure five 48 puts, which would mean owning $24,000 of a single stock if all are assigned.
Is selling puts on margin riskier than cash-secured puts?
Each put has the same risk either way. Margin only lowers the capital set aside, which makes it possible to sell many more puts and take on far more stock obligation than the account could pay for. That is where the extra risk comes from.
Does a covered call reduce the risk of owning the stock?
Only by the premium. A covered call on 100 shares bought at $50, with a call sold for $0.99, still loses $4,901 if the stock goes to zero, before fees. Size it like the stock position it is.