Question: The initial margin requirement for writing a naked option is the premium plus 20% of the stock value plus any necessary adjustments for not being-at-the-money.

The initial margin requirement for writing a naked option is the premium plus 20% of the stock value plus any necessary adjustments for not being-at-the-money. Also assume the margin requirement for stock is 50%. An investor buys one (naked) call option. The option price is $4 at a strike price of $50 and a stock price of $52. What is the investors net cash outflow when entering this trade?

$400

$200

$500

$80

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

1. Discuss why the sampling method and sample size make these results questionable, even though the numbers were reported as if they were precise. 2. The simple survey method described in the case...

Q:

9. The initial margin requirement for writing a naked option is the premium plus 20% of the stock value plus any necessary adjustments for not being-at-themoney. Also assume the margin requirement...

Q:

The initial margin requirement for writing a naked option is the premium plus 20% of the stock value plus any necessary adjustments for not being-at-the-money. Also assume the margin requirement for...

Q:

The initial margin requirement for writing a naked option is the premium plus 20% of the stock value plus any necessary adjustments for not being-at-the-money. Also assume the margin requirement for...

Q:

.At t you write a (naked) IBM put option for SP at a strike price of sx. It is exercised on you at T. For tax purposes at T you a. Bought IBM stock for $X b. Bought IBM stock for (X-P) c. Sold IBM...

Q:

5. At t you write a (naked) IBM put option for SP at a strike price of SX. It is exercised on you at T. For tax purposes at T you a. Bought IBM stock for SX b. Sold IBM stock for $ (X-P) c. Sold IBM...

Q:

In questions #7, and #8 assume that the initial margin requirement for writing a naked option is the premium plus 20% of the stock value plus any necessary adjustments for not being at-the-money....

Q:

In question 1 and 2 assume that the initial margin requirement for writing a naked options is the premium plus 20% of the stock value plus any necessary adjustments for not being at the money. Also...

Q:

In question 1 and 2 assume that the initial margin requirement for writing a naked options is the premium plus 20% of the stock value plus any necessary adjustments for not being at the money. Also...

Q:

1. An IBM stock option is on the January cycle. What IBM options trade on April 10? a. April May July October b. May July October January c. May June July October d. July October January April 2. The...

Q:

1. An IBM stock option is on the January cycle. What IBM options trade on April 10? a. April May July October b. May July October January c. May June July October d. July October January April 2. The...

Q:

In Fig. 31-7, R = 15.0 Ω, C = 4.70 μF, and L = 25.0 mH. The generator provides an emf with rms voltage 75.0 V and frequency 550 Hz. (a) What is the rms current? What is the...

Q:

A hemispherical window (or viewport) in a decompression chamber (see figure) is subjected to an internal air pressure of 80 psi. The port is attached to the wall of the chamber by 18 bolts. Find the...

Q:

Question 4 What is the rate of return for the following cash flow? Please solve it with explanations. Thank you

Q:

Given the following information, calculate the 95% confidence interval around the mean return, assuming the data is from a diversified portfolio and observations are i.i.d. mean return over 60 months...