Chapter 04 · Section 4.1
Tina-Excess of 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 initial margin requirement for the 3 uncovered calls is$3480. By the end of Day 1, Colgate stock drops to $37 and Colgate 35 calls close at 3 3/4 (3.75).
After Tina's position is marked-to-the-market, what will be the amount of funds in excess of margin requirements in her account?
a) +4055
b) -3480
The amount of margin required at the end of the day for 1 uncovered option: 20 % of $3700 = $740
+ 100% of $375 = $375________$1115
The margin requirement for three uncovered options is $3345. Tina has $5000 cash in her account and has in addition received 6 * $400 in premium.
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.