EXAMPLE 3.4 Margin Calls on Short Positions Suppose the broker has a maintenance margin of 30% on short sales. This means the equity in your account must be at least 30% of the value of your short position at all times. How much can the price of Dot Bomb stock rise before you get a margin call? Let P be the price of Dot Bomb stock. Then the value of the shares you must pay back is 1,000P, and the equity in your account is $150,000 - 1,000P. Your short position margin ratio is equity/value of stock = (150,000 - 1,000P\/1,000P. The critical value of P is thus Equity Value of shares owed 150,000 - 1,000P 1,000P .3 which implies that P = $115.38 per share. If Dot Bomb stock should rise above $115.38 per share, you will get a margin call, and you will either have to put up additional cash or cover your short position by buying shares to replace the ones borrowed. CONCEPT check 3.6 a. Construct the balance sheet if Dot Bomb goes up to $110. b. If the short position maintenance margin in Example 3.4 is 40%, how far can the stock price rise before the investor gets a margin call