That night, maintenance margin was 96.3% of net worth. I was $210 from forced liquidation.

Seven hours later, cash had gone from $140 to $1,620, margin was down to 58.0%, and delta exposure from 4.15x to 1.64x.

The lesson from that night: margin is not my money. It is a risk allowance the broker lends me.

1. Three Lines, Three Different Questions

Open any seller’s account and look at three numbers, not “total assets”:

Number	Question it answers
Cash	How much money do I actually have to take delivery, or to lose?
Maintenance margin	How much risk does the broker think I am using?
Excess liquidity	How much more can I add before a margin call?

Of the three, only the first is yours. The second is the broker’s risk model. The third is “how much more you can borrow without triggering anything.”

Treating the third as the first is the textbook start of a blow-up.

2. Two Fates for the Same Short Put

Sell one $8 put. The account type decides the ending:

Cash secured: $800 must sit in the account. Assigned, you buy with that $800, the position becomes 100 shares, and no extra money is needed.

Margin put: the account may need only $160–240. That looks 3–5× more capital-efficient, but on assignment you buy the shares with borrowed money — and borrowing to buy stock is leverage.

The difference is not on entry day. It is on the down day: the cash-secured seller asks “do I want these shares?” The margin seller asks “can I survive this?”

Same view, one is a choice, the other is a survival problem.

3. The Margin-Call Chain: Why You Always Get Sold at the Low

Forced liquidation is not an event, it is a chain:

1. The underlying falls → delta exposure rises → maintenance margin rises;
2. Net worth falls at the same time → margin ÷ net worth races toward 100%;
3. The broker issues a margin call with a very short window;
4. If you can’t fund it, the system liquidates — usually the most liquid position first, which is the one you least want sold;
5. The sale happens at the low, the loss becomes realized, and the account never sees the bounce.

My 96.3% was step 2. Three-point-seven percentage points from step 3.

So the real risk control for a seller is not “will it fall,” it is never letting the chain reach step 3.

4. How 1.31x Leverage Is Computed

Brokers quote leverage many ways. I only use one: delta exposure ÷ net worth.

• 100 shares = 1.0x delta exposure;
• One 0.5-delta put = 0.5x (times 100 shares);
• 35 short calls at 0.25 delta = 0.25 × 100 × 35 = 875 share equivalents.

Add every delta equivalent and divide by net worth in share terms, and you have real leverage. Mine was 1.31x on October 27 — which is why my cap is 1.5x and anything above 1.8x requires cutting.

Leverage is not “how much I borrowed.” It is “if the market moves 1%, how many points does my net worth move.” 1.31x means a 10% decline in the underlying costs roughly 13% of net worth.

5. Why a 25% Cash Floor Exists

My hard line: cash ≥ 25% of net worth.

The reason isn’t caution, it’s arithmetic. Cash is the only thing that can do something in a decline: take delivery, buy back, meet a margin call. Below 25%, your only available action in a selloff is to wait.

On October 27 cash was 31%, which looks safe; but maintenance margin was already 49.4%. 31% cash + 49.4% margin = 80.4%, leaving under 20% of net worth as real buffer.

Read the three lines together. Any one alone flatters you.

6. Three Misconceptions

One: “Excess liquidity is my money.” No. It is credit that reprices with the underlying, IV, and position structure — and it shrinks at the same time everything else does. That is the dangerous part.

Two: “Portfolio margin is safer.” Portfolio margin nets risk, so normal-condition requirements are lower and it looks safer. But correlations go to 1 in a crisis and the model suddenly demands more — the more you saved in calm markets, the more you lack in the storm.

Three: “Assignment is the risk.” Assignment is an outcome. The risk is being liquidated on the way down — no shares, no bounce, just a realized loss.

7. When This Framework Doesn’t Apply

1. The account dwarfs the position. With 70%+ cash, margin percentage fluctuations barely matter.
2. You only sell cash-secured and never use margin. The third line is irrelevant to you, but the first line is still a hard constraint.
3. Very short-term spread trades. Held for hours, the margin chain never completes; different risk profile.

8. Monthly Reconciliation: Five Numbers

1. Net worth (account basis: equity − net deposits)
2. Cash ÷ net worth (≥ 25%)
3. Maintenance margin ÷ net worth (< 60% comfortable, > 80% must trim)
4. Leverage (delta exposure ÷ net worth, ≤ 1.5x)
5. Largest single-name worst-case loss ÷ net worth (≤ 20%)

If any line breaks, no new positions that month. This is not forecasting, it is a check-up.

9. Seven Questions Before You Open

1. Is this trade cash-secured or margin?
2. If assigned, do I have the cash, and what is left afterwards?
3. What will maintenance margin be as a share of net worth?
4. If the underlying falls 20%, where does margin percentage land?
5. What is my leverage after this trade?
6. How long is the margin-call window, and can I fund it in time?
7. If I were liquidated tomorrow, what gets sold first?

10. One Line

Margin is the risk allowance your broker lends you, not your principal.

Cash first, margin second, excess liquidity last — reverse the order and you will eventually be sold at the low.

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Related: The 2% rule · Selling puts: win rate vs payout · The 7-hour self-rescue

Data & Sources

• Updated 2026-11-13 | First published 2026-11-13
• Account snapshot: TWS 2026-10-27 (net worth $6,357.77; cash $1,992 / 31%; maintenance margin 49.4%; leverage 1.31x; excess liquidity $3,217.61), see Premium Is Not Income (in Chinese)
• 96.3% → 58.0%, cash $140 → $1,620, delta 4.15x → 1.64x, $210 to liquidation, see the 7-hour self-rescue
• Margin rates vary by broker, underlying, IV and account type; no universal rate is implied here

Risk Boundaries

Account structure and risk lines only; not investment advice. Margin requirements are computed in real time and can jump in stress; call and liquidation rules follow each broker’s agreement. Three lines help you trim early; they cannot guarantee you avoid liquidation.