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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: upanddown who wrote (34664)	10/27/1998 9:25:00 PM
From: Cynic 2005	Respond to of 132070

I think the 25% collateral Mike is suggesting includes the option premium on the naked options you will sell. My broker actually asks 30%.

To: upanddown who wrote (34664)	10/27/1998 11:22:00 PM
From: Knighty Tin	Respond to of 132070

John, I stated that very poorly. Perhaps even incorrectly. The broker is required to hold the premium on a short option. He cannot allow you to spend part of it even if the trade goes your way. The total he is required to hold is the 25% of the stock price at exercise, marked to market above strike price, less the premium and the out of the money. Using Intel at $88, and a $7 premium on a 100 strike price call, he is required to hold 25% of $10,000 (100 shares times $100), less $700 of option premium, less $1200 of out of the money. That would mean he is required to hold $600. His own internal requirements may and probably will be higher. However, if the amount he is required to hold is less than the premium, he is still required to hold all the premium. So, even though $600 may be required in the main formula, $700 is held with the premium minimum rule. BTW, there is no reason at all why he can't pay you interest on that premium other than that he won't. Man, this hurts my head. <G> MB