Chapter 04 · Section 4.1
Tina- Meeting her 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. The margin requirement is thus $3480.If Tina did NOT have $5000 on account, how much money would she have to deposit to meet her initial margin requirement?
a) $2280
b) $3480
c) $1080
d) $3080
The premium received for writing the calls is credited to Tina's account. These funds can be used to cover part of her margin requirement.
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.