Assume you sold short 100 shares of common stock at $50 per share. The initial margin is 60%. What would be the maintenance margin if a margin call is made at a stock price of $60?

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Quizplus · Accepted Answer

The maintenance margin is calculated as the equity in the account divided by the market value of the securities. When the stock price increases to $60, the loss on the short sale is $10 per share, or $1,000 total (100 shares * $10). The initial equity was $3,000 (60% of $5,000, which is 100 shares * $50). After the loss, the equity is $2,000 ($3,000 initial equity - $1,000 loss). The market value of the shorted stock is now $6,000 (100 shares * $60). Therefore, the maintenance margin is $2,000 / $6,000 = 33.33%, which rounds to 33%.

Assume You Sold Short 100 Shares of Common Stock at $50