I'm not the expert here, but no one else seems to have really addressed your question. If you check with your broker I think you will find they will allow you to drift deeper into "debt" than you can put yourself initially. The 1/2 rule applies when you take a position in a margin account, but your account ratio can be less. I've seen numbers like 30%, and I believe that is typical.
In your example, you would need $1000 cash available, with buying power of $2000 to borrow the 100 shares to sell short at $20. If this is your whole portfolio, and neglecting commissions, your account value would be $1000, and your account ratio (value/long+short) would be 50%. At $22/share, you would be on the hook to cover $2200, but your account value would have dropped to $800, a ratio of 36%. You would hit a 30% ratio at about $23/share, and if that is your limit your broker would buy shares to cover your short position leaving you with $700 available cash and $1400 buying power. Your 30% loss would be twice the 15% move of the stock. And of course if the stock price dropped 15%, you would make 30%.
If you own other stocks, or have other cash, all of that figures into your account value and ratio. Of course you need to confirm that this is the way YOUR broker would handle the situation and calculate the account ratio. Also keep in mind that you have borrowed someone elses stock to sell short, and they might want it back, so the timing of your cover buy may not be your choice even if you do satisfy the margin requirements. |
