In: Finance
A trader shorts 386 shares of OverPriced.com at $21.4 per share. Initial margin requirements are 48% and maintenance margin is 38%. At what price will the trader receive a margin call?
A trader shorts at price of $21.4 per share.
If initial margin falls below maintenance margin, then trader is asked (margin call) to pay to increase the margin back to initial margin.
Inital Margin Level = 21.4*48% = $10.27
Maintenance Margin Level = 21.4*48% = $8.13
Price of Share at which the trader received margin call = 21.4 + (10.27-8.13) = $23.54
Hence if prise rises to above $23.54, trader will receive a margin call to pay in to increase the margin