Question

Help Save & You are bearish on Telecom and decide to sell short 100 shares at the current market price of $33 per share. a. How much in cash or securities must you put into your brokerage account if the broker's initial margin requirement is 50% of the value of the short position? Initial margin b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? (Round your answer to 2 decimal places.) Stock price reaches

Answer 1

No of shares shorted = 100

Current Market Price = $33

Value of the position = $33 * 100 = $3,300

a.

Initial margin requirement = 50% of $3,300 =  $1,650

b.

Maintenance margin requirement = 30% of the value of Short Position = (0.30 * $3,300) = $990

Hence, we will get maintenance call if we have only $990 left in our account

Hence, loss suffered on our position = ($1,650- $990) = $660

No of shares shorted = 100

Hence, share price should increase by :- $6.6

Hence, share price should go upto = $(33 + 6.6) = $39.60 for margin call to get triggered.