Question

A trader buys 600 shares of a stock and sells six call options contracts on the stock. The strike price is $40. The price of the option is $7. What is the trader's minimum cash investment

a.   If the stock price is $38

b.   If the stock price is $42

c.   If the contracts were naked, what is the initial margin if the stock price is $38

Answer 1

Here given: 600 shares

a. minimum cash investment = 600*$38 - 6*$7 = $22800 - $42 = $22758

b. minimum cash investment = 600*$42 - 6*$7 = $25200 - $42 = $25158

c. Initial Margin = 6*$38 = $228

But I think the question should be that "A trader buys 6 shares of a stock and sells six call options contracts on the stock​"
Solving accordingly

a. minimum cash investment = 6*$38 - 6*$7 = $228 - $42 = $186
b. minimum cash investment = 6*$42 - 6*$7 = $252 - $42 = $210
c. Initial Margin = 6*$38 = $228

Please do rate me and mention doubts, if any, in the comments section.