Margin on the hedge competes with the line itself

A written option inside a pledged account creates a second claim on the same collateral. Track 2 lesson 13 established that its requirement is recomputed continuously and rises as the option moves into the money. The consequence for a line of credit is that capacity and requirement move on the same underlying price.

Set it up. The pledged pool is $1,640,000 at a blended 61 percent, so lending value is $1,000,400, and the balance is $690,000. Written calls cover 14,000 shares struck at $96 with the shares at $88. On an illustrative formula of 18 percent of underlying value less the amount out of the money, the requirement is (14,000 × $88 × 0.18) − (14,000 × $8) = $221,760 − $112,000 = $109,760.

That $109,760 is collateral committed elsewhere, so usable lending value is $1,000,400 − $109,760 = $890,640, and loan to value against it is $690,000 ÷ $890,640 = 77.5 percent rather than the 69.0 percent the full figure suggests.

Now let the shares rise to $103. The pool gains 14,000 × $15 = $210,000, reaching $1,850,000, so lending value rises to $1,128,500. The calls are now in the money, so nothing is deducted for being out of the money and the requirement becomes 14,000 × $103 × 0.18 = $259,560. Usable lending value is $868,940, and loan to value rises to 79.4 percent. Collateral rose $210,000 and the position tightened.

A rally is not a neutral event for a written leg held inside the pledge. The collateral that funds the line and the collateral that secures the option are the same dollars, and only one of the two claims shrinks when prices fall.