Chapter 04 · Section 4.1

Excess Magin- GM

END OF DAY                          MARGINS                 Closing Prices
short 3 covered Colgate Nov35 calls $     0  Colgate Stock      $37.50 
short 3 uncov. Colgate Nov 35 calls $ 3,330  Unisys Stock       $75.00   
long  5 Unisys Nov 75 puts          $     0  Colgate Nov 35 Call$ 3.60   
excess margin:                      $ 2,820  Unisys Nov 75 Put  $ 1.75   

TINA'S TRANSACTIONS ON DAY 3: Sold 2 GM March 70 puts at $2.00

TINA'S POSITIONS DURING DAY 3                      Current Prices 
short 3 covered Colgate Nov35 calls $     0  GM stock      $70.00     
uncov. Colgate Nov35 calls          $ 3,330  GM Mar 70 put $ 2.00   
long  5 Unisys Nov 75 puts          $     0   
short 2 uncov. GM Mar 70 puts       $ 2,560 
            excess margin:          $ .....  

By what amount will Tina's excess margin be reduced just after the sale?

a) +2160
b) -2560
• c) -3500
  No. No, but 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

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