For instance: Say I want to write a call option with a strike of $260 for a company currently trading at $250, and I get a premium of $300 for it. What happens if stock goes to $265 and the buyer exercises it? If I don't own any of the stock, my understanding is that my broker will initiate a short position of 100 shares (having sold those 100 shares to the exerciser).
Now it seems this should be straightforward - I made $300 from the premium but lost $500 when exercised, so I just lose $200. But say I only have $10k cash in my account, and this short position is worth 26.5k. My broker gives me enough margin to handle that intraday, but what happens if the exerciser exercises the contract near the end of the trading day? If you have a call option out are you just always at risk of having a margin call on your account, if the trading day ends before you get a chance to cover an executed option? Also, what happens if you put out 3 such call contracts that are all executed (79.5k value) well beyond your broker's margin limits?
Thank you!
Submitted April 07, 2017 at 03:22AM by Arete2 http://ift.tt/2oLdzbe
