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Hi ! Need help on the following scenario:: Imagine I believe the prices of large tech companies will decrease significantly in the near future. To
Hi Need help on the following scenario:: Imagine I believe the prices of large tech companies will decrease significantly in the near future. To take advantage, I decide to take a short position in a tech stock. Say it is currently trading for $ per share. Assume my broker requires an initial margin rate IMR of and a maintenance margin rate MMR of
So I decide to short sell shares at the current price of $ per share, using the full margin rate allowed by my broker. What percentage return will I earn on the investment if the price increases to $ per share over the next year?
Part B: Suppose I change my mind and bet on the expected price decrease by purchasing European Put options on that stock with an exercise price of $ and one year to expiration. Better said, I invest the same amount of money as in part A but invest the full amount in these new put options at a price of P$ per option. What percentage return will I earn on my investment if the price of that stock increases to $ per share over the next year?
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