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Answer: $9,400
For 10 contracts on 100 shares each, the position is on **1,000 shares**. - **Option proceeds** = 1,000 × $3.40 = **$3,400** - The put is **out of the money** by $55 − $50 = **$5 per share**, or **$5,000** total. Now calculate the two margin formulas: 1. **Proceeds + 20% of underlying value − out-of-the-money amount** = 3,400 + 0.20 × (1,000 × 55) − 5,000 = 3,400 + 11,000 − 5,000 = **$9,400** 2. **Proceeds + 10% of exercise price** = 3,400 + 0.10 × (1,000 × 50) = 3,400 + 5,000 = **$8,400** The margin requirement is the **greater** of the two values, so the answer is **$9,400**.
Author: Manit Arora
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Q-608.2. Hull explains the following margin requirements for a short position in naked options:
A naked option is an option that is not combined with an offsetting position in the underlying stock. The initial and maintenance margin required by the CBOE for a written naked call option is the greater of the following two calculations:
For a written naked put option, it is the greater of
The 20% in the preceding calculations is replaced by 15% for options on a broadly based stock index because a stock index is usually less volatile than the price of an individual stock.
Question: A trader writes ten (10) naked put option contracts, with each contract being on 100 shares. The strike price is $50.00 and the stock price is currently $55.00. The option price is $3.40. The time to maturity is six months and the implied volatility is 40.0%. What is the margin requirement?
A
$3,400
B
$5,500
C
$7,300
D
$9,400
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