Sample Term Paper

The option margins are tool of design which are designed to protect the financial security of the market. In regard to margin, (Gupta, 2005) states that margin is an amount that is calculated by option stock markets as necessary to ensure that the writer can meet that obligation on day of trading. Therefore, the margins serve as potential security for investment and smooth option trading.

Furthermore, Gupta ( 2005) states that there are two kind of margin dominantly used: the risk margin that covers the potential change in the price of the option contract assuming daily volatility in the price of the underlying security; and secondly, is the premium margin which  is the market value of the position at the close of business on daily basis. I really financial implication, it represents the amount that would be required to close out firm’s option position.

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