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+Clrapter 2: Covered Call Writing 51 
+Example 2: Recall that the net investment for the cash write was $20,380. A 
+margin covered write requires less than half of the investment of a cash write when 
+the margin rate (set by the Federal Reserve) is 50%. In a margin account, if one 
+desires to remove the premium from the account, he may do so immediately provid­
+ed that he has enough reserve equity in the account to cover the purchase of the 
+stock. If he does so, his net investment would be equal to the debit balance calcula­
+tion shown on the right in Table 2-8. 
+TABLE 2-8. 
+Net investment required-margin account. 
+Stock cost $21,500 
+Plus stock commissions + 320 Debit balance calculation: 
+Net stock cost $21,820 Net stock cost $21,820 
+Times margin rate X 50% Less equity - 10,910 
+Equity required $10,910 Debit balance $10,910 
+Less premiums received 1,500 (at 50% margin) 
+Plus option commissions + 60 
+Net margin investment $ 9,470 
+Tables 2-9 to 2-12 illustrate the computation of returns from writing on margin. 
+If one has already computed the cash returns, he can use method 2 most easily. 
+Method 1 involves no prior profit calculations. 
+TABLE 2-9. 
+Return if exercised-margin account. 
+Method 1 Method 2 
+Stock sale proceeds 
+Less stock commission 
+Plus dividends 
+$22,500 Net profit if exercised-cash $2,290 
++ 
+Less margin interest charges 
+330 
+500 
+(10% on $10,910 for 6 months) - 545 
+Less debit balance 
+Less net margin investment 
+Net profit-margin 
+- 10,910 
+- 9 470 
+$ 1,745 
+Less margin interest charges -
+Net profit if exercised­
+margin 
+$1,745 Return if exercised = $9 ,470 = 18.4% 
+545 
+$1,745