Short Position (Borrowing Stocks from Brokers)
The broker’s margin requirement for short sales are as follows:
Initial Margin: 50%
Maintenance Margin: 25%
Assume that an investor has $1000 investments in his account.
The current price of stock Dot Bomb is $60/share.
The investor believes this stock’s price will go down significantly in next quarter and decides to short now.
a. How many shares can he short?
b. How much can the stock price rise before a margin call?