Chapter 04 · Section 4.1

Margin Call

END OF DAY POSITIONS                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         MARGINS   CURRENT PRICES
short 3 covered Colgate Nov35 calls   $     0   Colgate stock        $39.00  
uncov. Colgate Nov35 calls            $ 3,840   Colgate Nov35 call   $ 5.00
long  5 Unisys Nov 75 puts            $     0   GM Stock             $72.00
short 2 uncov. GM Mar 70 puts         $ 3,000   GM Mar 70 puts       $ 3.00
excess margin:                        $ .....   Unisys Nov75 put     $ 1.75

At the end of Day 3, Tina receives a margin call which must be met within 24 hours. How many dollars must she deposit?

At the end of day two, the excess margin was 2,820. Together with the $3,840 margin requirement, the sum was $6,660. Add the premium received during the day and you get the total to compare with the total margin requirement of day 3. The GM puts were sold at $2.00. Therefore, $400 were credited to Tina's account. But that was more than offset by the additional 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.