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+Cl,apter 5: Naked Call Writing 135 
+make a 5-point profit there. Above 45, the naked write does better; it has larger prof­
+its and smaller losses. Below 45, the short sale does better, and the farther the stock 
+falls, the better the short sale becomes in comparison. As will be seen later, one can 
+more closely simulate a short sale by writing an in-the-money naked call. 
+INVESTMENT REQUIRED 
+The margin requirements for writing a naked call are 20% of the stock price plus the 
+call premium, less the amount by which the stock is below the striking price. If the 
+stock is below the striking price, the differential is subtracted from the requirement. 
+However, a minimum of 10% of the stock price is required for each call, even if the 
+C-'Omputation results in a smaller number. Table 5-2 gives four examples of how the ini­
+tial margin requirement would be computed for four different stock prices. The 20% 
+collateral figure is the minimum exchange requirement and may vary somewhat among 
+different brokerage houses. The call premium may be applied against the requirement. 
+In the first line of Table 5-2, if the XYZ July 50 call were selling for 7 points, the $700 
+call premium could be applied against the $1,800 margin requirement, reducing the 
+actual amount that the investor would have to put up as collateral to $1,100. 
+TABLE 5-2. 
+Initial collateral requirements for four stock prices. 
+Coll 
+Written 
+XYZ July 50 
+XYZ July 50 
+XYZ July 50 
+XYZ July 50 
+Stock Price When 
+Coll Written 
+55 
+50 
+46 
+40 
+*Requirement cannot be less than 10%. 
+Coll 
+Price 
+$700 
+400 
+200 
+100 
+20% of 
+Stock Price 
+$1,100 
+1,000 
+920 
+800 
+Out-of-the­
+Money 
+Differential 
+$ 0 
+0 
+400 
+- 1,000 
+Total Margin 
+Requirement 
+$1,800 
+1,400 
+720 
+400* 
+In addition to the basic requirements, a brokerage firm may require that for a 
+customer to participate in uncovered writing, he have a minimum equity in his 
+account. This equity requirement may range from as low as $2,000 to as high as 
+$100,000. Since naked call writing is a high-risk strategy, some brokerage firms 
+require that the customer be able to show both financial wherewithal and option