What Is the Margin Requirement for Writing a Naked Option Compared to a Covered Option?
The margin requirement for writing a naked (uncovered) option is significantly higher than for a covered option. Naked options expose the writer to potentially unlimited loss, so the exchange requires a large margin deposit to cover this risk.
For a covered option, the underlying asset already owned serves as collateral, dramatically reducing the exchange's risk. Consequently, the margin requirement for a covered option is often minimal or zero, as the position is fully collateralized.
