Purchasing a Put Option to Maintain a Short Position

by David Jenyns on June 26, 2007

Purchasing a Put Option to Maintain a Short Position
A man is short of 100 shares of XYZ which he sold short at 55 (he hopes to buy it back at 30)—the stock is now selling at 50. He originally deposited funds with his broker to margin this short sale but he now has use for these funds. How can he withdraw these funds from his account and still profit by a further decline of the stock? If he covers the stock that is short, he will no longer need margin for that short sale, and he can withdraw his funds. He then buys a Put option at 50 (the market) for 90 days for $350.00.

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