A trader shorts 386 shares of OverPriced.com at $21.4 per share. Initial margin requirements are 48%...

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?

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Expert Solution

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

jeff jeffy answered 2 years ago

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