Chapter 04 · Section 4.1

Margin Requirement Day 2

Unfortunately Tina was wrong. Rather than declining, the Unisys stock went up. The Unisys puts, bought at $2.50, went down to $1.75. Here is her situation at the end of day 2. 

Positions                          Margins  Cosing Prices   


short 3 covered Colgate Nov 35 calls $     0   Colgate Stock    $37.50
short 3 uncov.  Colgate Nov 35 calls $ .....   Colgate Stock    $37.50
long  5 Unisys Nov 75 puts           $ .....   Colgate Nov 35 C $ 3.60
                                               Unisys Nov 75 P  $ 1.75
excess margin:                       $ .....

What is the total margin requirement at the end of the day? Please enter the appropriate dollar amount.

Tina must pay the whole premium for the Unisys puts she bought. Since this amount represents the maximum loss she can make on her transaction, no margin is required for the long position in Unisys puts. Since Tina is an uncovered writer of 3 calls, her margin is recalculated daily by taking account of the most recent prices. The formula used is the same: (20% of the underlying price) + (100% of the premium) - (out-of-the-money amount). 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.