Chapter 04 · Section 4.1

Margining case study - Tina writes 6 calls

Tina (like Linda) has $5000 in cash and 300 fully-paid Colgate stocks in her account. Colgate stock is currently trading at $38.

Day 1: Tina writes 6 Colgate 35 calls at $4.00. Is there a margin requirement for her transaction?

a) no
No. Suppose she is assigned the exercise of 6 calls today; her broker knows that her 300 shares may be used to fulfill the bligation of the 3 calls. However, the broker would need a collateral for the 3 remaining calls.
b) yes