Question

Option Trading 4

Microsoft stock is trading at $107. A put option expiring in two months has a strike price of $101.20 and is trading at a premium of c=$0.15. Mike, who has no other Microsoft stock or option positions, writes 14 contracts. Find Mike's margin requirement in total.

Answer 1

The strategy opted here is long put 9 month or less.

The Initial margin requirement is as follows:

-Pay for each put in full; cash need not be deposited in excess of put(s) cost.

which will be calculated as follows ,

No. of contracts*option premium*strike price

Given No. of contracts = 14, option premium = $0.15 & strike price = $101.20

Hence initial margin will be 14*$0.15*$101.20 = $212.52.

Mike will get a margin call of $212.52 initially.