: An investor writes five naked put option contracts on a stock. The option price is $8, the strike price is $35, and the stock price is $38. What is the margin requirement for the options
Answer - Margin requirement = $6300
Reason -
The initial margin for writing a naked put option is the greater of -
(1) A total of 100% of proceeds plus 20% of the underlying share price less the amount (if any) by which the option is out of the money
(2) A total of 100% of proceeds plus 10% of exercise price
In present case because the option is $3 out of the money, so the first calculation gives,
500 * ( $8 + $38 *0.2 - 3)
= 500 * ( $8 + $4.6 )
= 500 * $12.6
= $6300
The second calculation gives,
500 * ( $8 + $35 * 0.1 )
= 500 * ( $8 + $3.5 )
= 500 * $11.5
=$5750
As the first option is greater, margin requirement will be $6300.
: An investor writes five naked put option contracts on a stock. The option price is...
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