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+Cl,opter 4: Other Call Buying Strategies 121 
+feels ve:ry certain that his bearish view of the stock is the correct view, he might then 
+buy a fairly deep out-of-the-money call just as disaster protection, in case the stock 
+suddenly bolted upward in price (if it received a takeover bid, for example). 
+MARGIN REQUIREMENTS 
+The newest margin rules now allow one to receive favorable margin treatment when 
+a short sale of stock is protected by a long call option. The margin required is the 
+lower of (1) 10% of the call's striking price plus any out-of-the-money amount, or (2) 
+30% of the current short stock's market value. The position will be marked to market 
+daily, and most brokers will require that the short sale be margined at "normal" rates 
+if the stock is below the strike price. 
+Example: Suppose the following prices exist: 
+XYZ Common stock: 47 
+Oct 40 call: 8 
+Oct 50 call: 3 
+Oct 60 call: 1 
+Suppose that one is considering a short sale of 100 shares of XYZ at 47 and the 
+purchase of one of the calls as protection. Here are the margin requirements for the 
+various strike prices. (Note that the option price, per se, is not part of the margin 
+requirement, but all options must be paid for in full, initially). 
+Position 
+Short XYZ, long Oct 40 call 
+Short XYZ, long Oct 50 call 
+Short XYZ, long Oct 60 call 
+l 0% strike + out-of-the-money 
+400 + 0 = 400* 
+500 + 300 = 800* 
+600 + 1,300 = 1,900 
+30% stock price 
+1,410 
+1,410 
+1,41 0* 
+*Since the margin requirement is the lower of the two figures, the items marked with an asterisk in 
+this table are the margin requirements. 
+Again, remember that the long call would have to be paid for in full, and that most 
+brokers impose a maintenance requirement of at least the value of the short sale itself 
+as long as the stock is below the strike price of the long call, in addition to the above 
+requirements.