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
The calculation for 1 uncovered option is: 20% of 3800 = 760
+ 100% of $400 = $400_____$1160
Tina is writing 3 uncovered options the 300 fully-paid Colgate shares she owns only cover 3 calls.