Question

You are bearish on Telecom and decide to sell short 100 shares at the current market price of $35 per share. How much in cash or securities must you put into your brokerage account if the broker's initial margin requirement is 50% of the value of the short position

Answer 1

When selling short, you need to deposit 50% of the value of the short position. In this case, you need to deposit $1,750 into your brokerage account.

Step-by-step explanation:

When selling short, you are essentially borrowing shares to sell them in the hope of buying them back at a lower price in the future. In this case, you sell short 100 shares at a current market price of $35 per share. The broker's initial margin requirement is 50%, so you will need to deposit 50% of the value of the short position into your brokerage account. The value of the short position is calculated by multiplying the number of shares (100) by the current market price ($35), giving a total value of $3,500. Therefore, you need to deposit $1,750 (50% of $3,500) in cash or securities into your brokerage account.