Chapter 04 · Section 4.1

Tina's Initial Margin

Tina has $5000 in cash and 300 fully-paid Colgate stocks in her account. Colgate stock is currently trading at $38. On day one, she writes Colgate Nov 35 calls at $4.00. What is her initial margin requirement?

Remember:

• MARGIN = 20 % of the current value of the underlying stock
• PLUS 100 % of the premium
• MINUS the amount the option is out-of-the-money

a) -3180
b) -2580 -6090 -260
c) -6960
d) -1160
• e) +3480
  Yes. Her margin requirement is $3,480. The calculation is as follows: 20% of $3800 = $760 + 100% of $400 = $400_________$1160 * 3 = $3480 Continue

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