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Strategies & Market Trends : Trading with Jerry Olson(OJ)
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To: Leroyt who wrote (1089)6/19/2003 2:27:14 PM
From: Dan Duchardt  Read Replies (1) of 1617
 
The rule is really not stupid at all. The Federal Reserve regulates the borrowing of money from your broker for purchasing securities (Reg T). The consistent theme of these regulations is that you may never use the proceeds of a sale of a security to cover the purchase cost.

Since you are working in a margin account, you should only need the usual 50% to purchase a marginable stock, whether outright or as an options exercise. If you have less than that, you must supply sufficient cash to the broker to cover your initial 50% of the cost. If it is not marginable, you need to cover 100%.

Of course you can always sell the options instead of exercising without any cash.
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