Chapter 04 · Section 4.1

Initial Margin Day 3

Situation at the beginning of day 3 

POSITIONS                                MARGINS 
short 3 covered Colgate Nov 35 calls      $     0   
short 3 uncov. Colgate Nov 35 calls       $ 3,330 
long 5 Unisys Nov 75 puts                 $     0 
excess margin:                            $ 2,820
Day 3: General Motors stock currently trades at $74 and GM March 70 puts at $2.00. Tina sells 2 GM March 70 puts.

What is the initial margin requirement for this transaction?

Tina is writing 2 uncovered out-of-the-money puts. 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.