Margin Call Question
The initial position is worth 40000. You post 50% margin, so you deposited 20000 and borrowed 20000. 6% of 20000 is 1200.
"If your shares get called on stock at a price below what you paid for the stock, your gain or loss depends on what premium you got for the options you sold.  ""can I deliver shares at that assigned strike using margin or additional capital if I have it? Can the broker just take care of it and let me collect the time premium? "" You don't need margin or any cash because you already hold the shares. A covered call means your cash requirements are 'covered'. So they'll just buy your shares at the strike price of $50. And you still get to keep the premium (which you should have gotten when you sold the covered call).  You only need cash or margin when you've sold an uncovered call or put." Well, premium is the least of my worries. I would rather worry about that than have to worry about a margin call. I hate debt, and so this is the draw for me. I will check on that. I have a few books on options and derivatives, and I find it quite fascinating! I would really like a specific book on future options, but I will take a look through the books I have. Thanks! "I think to some extent you may be confusing the terms margin and leverage. From Investopedia Two concepts that are important to traders are margin and leverage. Margin is a loan extended by your broker that allows you to leverage the funds and securities in your account to enter larger trades. In order to use margin, you must open and be approved for a margin account. The loan is collateralized by the securities and cash in your margin account. The borrowed money doesn't come free, however; it has to be paid back with interest. If you are a day trader or scalper this may not be a concern; but if you are a swing trader, you can expect to pay between 5 and 10% interest on the borrowed money, or margin. Going hand-in-hand with margin is leverage; you use margin to create leverage. Leverage is the increased buying power that is available to margin account holders.  Essentially, leverage allows you to pay less than full price for a trade, giving you the ability to enter larger positions than would be possible with your account funds alone. Leverage is expressed as a ratio. A 2:1 leverage, for example, means that you would be able to hold a position that is twice the value of your trading account. If you had $25,000 in your trading account with 2:1 leverage, you would be able to purchase $50,000 worth of stock. Margin refers to essentially buying with borrowed money.  This must be paid back, with interest.  You also may have a ""margin call"" forcing you to liquidate assets if you go beyond your margin limits. Leverage can be achieved in a number of ways when investing, one of which is investing with a margin account." It's unclear what you're asking. When I originally read your question, it seemed that you had closed out one options position and opened another. When I read your question the second time, it seemed that you were writing a second option while the first was still open. In the second case, you have one covered and one naked position. The covered call will expire worthless, the naked call will expire in the money. How your broker will resolve that is a question best left for them, but my expectation is that they will assign the non-worthless calls. Whereas, if both options expired in the money, you would be assigned and you would have to come up with the additional shares (and again, that depends on how your broker works). In general, for both cases, your net is the premiums you received, plus the difference between strike price and the price that you paid for the stock, minus any cost to close out the position. So whether you make a profit is very much dependent on how much you received for your premiums. Scenario #1: close first call, write second: Scenario #2: write covered + naked, one expires worthless Scenario #3: write covered + naked, both expire in the money Disclaimer: the SEC does not consider me a financial/investment advisor, so this is not financial/investment advice "Depends on your account. If you have a margin account, then you can ""withdraw"" the margin, and it will get paid off/settled on T+3. However if it's a cash account then you will most likely need to wait. Call your broker and ask, each broker has different rules." In the money puts and calls are subject to automatic execution at expiration. Each broker has its own rules and process for this.  For example, I am long a put. The strike is $100. The stock trades at the close, that final friday for $90. I am out to lunch that day. Figuratively, of course. I wake up Saturday and am short 100 shares. I can only be short in a margin account. And similarly, if I own calls, I either need the full value of the stock (i.e. 100*strike price) or a margin account.  I am going to repeat the key point. Each broker has its own process for auto execution. But, yes, you really don't want a deep in the money option to expire with no transaction.  On the flip side, you don't want to wake up Monday to find they were bought out by Apple for $150. It depends on the broker, each one's rules may vary. Your broker should be able to answer this question for how they handle such a situation. The broker I used would execute and immediately sell the stock if the option was 25 cents in the money at expiration. If they simply executed and news broke over the weekend (option expiration is always on Friday), the client could wake up Monday to a bad margin call, or worse. "First, your professor should learn proper grammar. Should be, ""Why **do**....""  Second, it looks like you're dealing with synthetic securities. You can create a synthetic T-Bill by doing a combination of long/short calls/puts.  But ignore all that. Just think about this without the technical jargon. We know that the risk free rate is typically what T-Bills are yielding right? And we know that since options are inherently more risky than US government debt, investors will demand a higher interest rate to compensate them for the risk. So, as the risk free rate increases, the value of a call will move the same direction, otherwise investors would stop dealing with call options and would instead buy safer, less-risky ""riskless"" investments.  It's not really an options question, just one of basic finance, risk, understanding of interest rates, etc." Oh it is ok. I was a little confused, because I tried to read up on future options and options as much as possible, and to still get question marks worried me. I mean to my knowledge, options can be traded as is without margin, while futures do need margin. If you are a starving artist, you can see the draw of not having to have margin to keep track of, but be able at the same time to learn about another market to trade in (commodities). Different brokerages have different house rules for margin requirements and margin calls.  You will likely get a margin call giving you a small amount of time to deposit the required funds to bring your account balance up to the required margin requirements.  In reality, a stock that falls from $50 to $4 in a short period will probably become unmarginable.  In short, yes, you will owe the broker for the loss. You own the stock at $29.42 At $40, the stocks is called at $26. You can't add the call premium, as it's already accounted for. The trade is biased towards being bearish on the stock. (I edited and added the graph the evening I answered)  Not the pretiest graph, but you get the idea. With that $29.42 cost, you are in the money till about $30, then go negative until the most you lose is $3.42. If this is the initial transaction, the rules of a short margin account say that if you shorted 1000 share of ABC at $5/share your credit balance would be $5000 from the short plus you would have to put up yourself $5000 cash or $10,000 of marginal securities. So this is not really leveraging using margin. You have to put in just as much as the short generates. Is that what this relates to? Once the initial purchase has been made the minimum maintenance for a stock trading under $5 per share is 100% of the short market value in the margin account or $2.50 per share whichever is greater. For stock trading at $5/share or greater the minimum maintenance requirement is $5/share or 30% of the short market value, whichever is greater. The minimum maintenance requirements can be tighter. hmmm. I think it's because in both cases, you must pay for it up front, before the positions are closed out. You own nothing except the right to buy the stock re: the call, and the obligation to buy the stock re: the short.  You buy a call, but must borrow the stock, for which you must put some margin collateral and there is a cost to borrow. You pay for that, of course.  I wouldn't call it lending though. "The issues of trading with unsettled funds are usually restricted to cash accounts.  With margin, I've never personally heard of a rule that will catch you in this scenario.  You won't be able to withdraw funds that are tied up in unsettled positions until the positions settle.  You should be able to trade those funds.  I've never heard of a broker charging margin interest on unsettled funds, but that doesn't mean there isn't a broker somewhere that does. Brokers are allowed to impose their own restrictions, however, since margin is basically offering you a line of credit.  You should check to see if your broker has more restrictive rules. I'd guess that you may have heard about restrictions that apply to cash accounts and think they may also apply to margin accounts.  If that's the case and you want to learn more about the rules generally, try searching for these terms: You should be able to find a lot of clear resources on those terms.  Here's one that's current and provides examples: https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations On a margin account you avoid these issue because the margin (essentially a loan from your broker) provides a cushion / additional funds that avoid the issues.  It is possible that if you over-extend yourself that you'll get a ""margin call,"" but that seems to be different than what you're asking and maybe worth a new question if you want to know about that." The initial margin is $5940 and maintenance margin $5400.  A simple search of Comex Gold Margin gives the CME group site. You then need to specify CMX metals to see the margins.  Gold is currently about $1300. A gold future is 100 oz. So the full contract is worth $130K. You want to 'go long' so you enter into a contract for Dec '14. You put up $5940, and if gold rises, you gain $100 for each $1 it goes up. Likewise on the downside. If gold drops $5.40, you lost $540 and will get a call to end the position or to put up more money. It's similar to stock margin requirements, only the numbers are much lower, your leverage with futures is over 20 to 1.