So according to your formula, as the position moves against you, your exposure goes DOWN? I do not think so. This is what apparently Brec's formula attempts to deal with that yours modification does not. REPLACEMENT cost is the basis for calculating exposure in a short position which involves BORROWED stock. When stock moves up $2,000 for a short position, its replacement cost when up $2,000 from the initial $10,000 purchase. In other words, the stock held as a long position is worth now $12,000, not $8,000. This is what you will have to pay out of your account to cover your position in the stock you have borrowed from that "other" person. They will not accept $8,000 for their stock that went UP $2,000 from the value it had when you borrowed it from them. So Brec's figure of $12,000 is valid for its comparison to the current equity in the account of $18,000.
Just my two cents. :-)
Bob Graham |
