Registered: Mar 2004
07-29-12 07:01 PM
Quote from hajimow:
Now back to your question. Your first trade on the stock, will use 50% margin and you will pay interest on that. The second trade you are selling option on a stock that you don't have and that will need cash to support that trade (for calculation of the amount of cash to support naked options, check with your broker)and then you will also need to pay interest on that part too. So the second trade will increase the interest that you need to pay.
You had 20K, and when you trade that second option trade, you only have 12K and since you have bought 40K worth of stocks, you are borrowing 28K from your broker.
I correct myself. My answer was on the assumption that you bought 40K worth of stocks in the first place. When you sell the options, you get $600 but you need that plus $8000 cash to maintain that position, so your cash will be $12K and you had already bought 20K worth of stocks, so you pay interest on that $8K that you have borrowed.