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The current price of a stock is $100/share. You believe that the price is too...

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Finance

The current price of a stock is $100/share. You believe that the price is too high and will decrease in the near future. To make profit from the price drop, you instruct your broker to short sell 100 shares of the stock. The initial margin requirement is 50% and the maintenance margin is 30%. To protect yourself from possible price increase, you purchase a call option contract (100 calls per contract). The premium is $5 per call. If the maximum loss you can tolerate is -20%, what should be the strike price of the call option?

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