Question

An investor has sold short stock worth $20,000 in a margin account, depositing the Regulation T margin requirement. If the market value of the stock falls to $16,000, what is the Selling Power in the account

Answer 1

The selling power in the account is $20,000.

Step-by-step explanation:

Credit - Short market value = Equity %

Sale $20,000 $20,000

Margin $10,000 $10,000

Total $30,000 $20,000 $10,000 50%

If the market value falls to $16,000, the account will show;

Credit - Short market value = Equity %

$30,000 $16,000 $14,000

To support a $16,000 stock position at 50% margin, equity of $8,000 is required. Since the account has $14,000 of equity, the excess of $10,000 may be borrowed and it's the

SMA amount. With $10,000 of SMA amount, twice this amount may be purchased or sold short in other marginal securities.