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