What do we mean when we say "requirements?"
For initial margin, it means the $ amount of cash or SMA that must be used to cover the Reg T call.
Remember that, for short options, you calculate the requirements just as we did in the previous example. Your Reg T call is equal to the requirements. Then you subtract the premium received from the sale from the Reg T call to determine the final amount of cash or SMA to be used.
For maintenance margin, the requirements are the amount of equity you need to support that position.
In calculating maintenance margin, you must do it separately for each type of position.
For example, assume that the firm has a 30% maintenance requirement with 100% margin requirement on stocks under $4.00.
Add up all of your long stocks over $4.00, and determine your requirement by multiplying by 30%.
Add up all of your long stocks under $4.00, and determine the requirement at 100%.
For short sales, determine the requirement.
For bonds, determine the requirement.
For long options, add them up and determine the requirement at 100% (remember to do it separately at 75% for LEAPS over 9 months, provided that your firm uses this calculation).
For nakeds, determine the requirement on each individual position.
Finally, add up all of the requirements calculated above and compare the total to your account equity. Remember to adjust your equity to value all covered calls at the lower of strike or market value, and to disregard all short and long options premiums in calculating equity.
If your requirements exceed your equity, you will receive a maintenance call. |
