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