Question

You short sold 1,100 shares of stock at a price of $29 and an initial margin of 55 percent. If the maintenance margin is 40 percent, at what share price will you receive a margin call? What is your account equity at this stock price?

Answer 1

No of stock = 1100

Price of Stock = 29

Short sale = 31900

Initial Margin % = 55%

Initial Margin = 17545

Total value = 49445

The earnings of the sale is 31900, which is deposited in our account for a total account value of $49,445 (31900+55%)

Maintenance Margin = 40%

Margin Call Value = 49445/ (1+0.4)

Margin Call Value = 35317.86

Price per share = 35317.86 / 1100

Price per share = 32.11

So a margin call will be triggered when the price of the shorted security rises to $32.11

Margin Call Price = 32.11

Account Equity = 32.11*1100

Account Equity = 35318