CFD and Sell call question

Discussion in 'Options' started by Derrenoption, May 7, 2017.

  1. Hello,

    Hope you are well. I wonder about a scenario that I try to describe below with 1 CFD and 1 Sell CALL that I am not sure how it will work in reality on the account.

    Thank you!


    Account size in actual money: $7500
    Account Margin: $15000

    1. We will buy 1 CFD of AAPL (100 shares of AAPL: 150$ * 100 = $15000)
    Margin requirement for this CFD: 10% of $15000 = $1500

    2. We will sell 1 CALL of AAPL (2$ credit received. Strike: 150)
    Margin requirement for this CALL: 20% of $15000 = $3000

    Total margin requirement: $4500
    AAPL closes at $160 at expiration. We OWE: $800

    Now if AAPL closes at $160 at expiration, we will normally have 100 shares CALLED AWAY from our account but we do not have any shares. We have 1 CFD.

    Questions:
    1. Will we be SHORT 100 shares of stock now which means that we need $15000 in free margin? The thing is that we only have $10500 in free margin at this point. What actually happens in this scenario?

    2. Now I assume something in Question 1. In essence we need $15000 in free margin but at the same time we only OWE $800 which we have avaliable in Actual money. How will the system work here? Would be be short the stock and then the system detects that we dont have any margin for this and immediately closes the short position, which leaves us with a $800 loss on the actual capital. In what order does things happen here?

    What is the exact process here. What I really wonder is if we keep the CFD in the above scenario as described?