Options and margin
·
Can NOT buy option on margin if expires < 9
mo
·
Pay 100% of options premium-on margin, off
margin
·
LEAPs, options >9mo, deposit 75% of option
cost
·
LEAPs, loan value=25%
Selling options
·
Write covered calls
·
If covered, no margin
·
Naked, uncovered options-there is initial margin
requirement
·
Margin call, a % of market value
Suppose an investor buys 10 70 calls for a premium of 8. How
much must the investor deposit?
·
8x100x10=8000
Marking to the market
·
Securities valued at day’s closing price
·
Broker/dealers use it to make sure customer’s
have enough equity in margin account
·
Minimum maintenance level, broker/dealer tells
customer to deposit more $ or stock
·
Stock loan, broker/dealers borrow stock from
other broker/dealers-have to keep some $ to pay for borrowed stock
·
Marking to market, all margin accounts, in long
and short accounts, anytime there are borrowed securities
Under which of the following circumstances will the
broker/dealer firm mark to the market for the customer’s account?
·
When the market changes and more margin is
required
·
When market value changes
·
Customer must deposit more $
Margin account
·
$2000 minimum requirement
·
If purchase price under $2000, customer must
deposit all of price
·
If purchase $2000-$3,999 deposit $2000 minimum
·
If $4,000, deposit $2000
Government bond
·
No Reg T requirement
·
Minimum maintenance requirement 5% of principal
Municipal bonds
·
Maintenance requirement:15% of par value or 25%
of market value-pick lower one
Same day substitution
·
Can buy one stock, sell a stock same day and use
sale proceeds to pay for purchase
·
Sell more than buy, keep all proceeds. If
restricted-follow retention requirement-keep 50% of excess sales price
New issues
·
Can NOT buy on margin
Loan value
·
Amount of $ a broker/dealer can loan on a fully
paid for margin-allowed security
·
To buy stock, deposit equity-money or stock
Buying power
·
Amount of securities a customer can buy
Buying power=Money or (SMA)/ Reg T
