Question

A trader places an order to sell 2 naked September call contracts on NFLX (Netflix) at a limit price of $28/share with a strike of $400 when the stock trades at $385.

a) If the order is executed, calculate the margin requirement for this trade.

b) What is the break-even point on this trade?

c) How would the answer to a) change if the trader is buying two call option contracts at that same price?

Answer 1

a

Call option is out of money and margin is not required

b

Break even point = strike price + premium = 400 + 28 = 428

If stock price on expiration is 428 then trader is at no profit or loss position. Spot price beyond 428 results in loss and below 428 is profit situation.

c

Buyer of call option is not under obligation to exercise option on expiration. He is not required to maintain margin.

His break even point is same at 428. If stock price is 428 then he recovers premium paid. If stock price is above 428 then result is profit otherwise loss.

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