Question

16. Consider the following information about the CMX gold futures contract:

    (a) Contract size: 100 troy ounce
    Initial margin: $1,013 per contract
    Maintenance margin: $750 per contract
    Minimum tick size: 10 cents/troy ounce ($10/contract)

    There are four traders, A, B, C, and D in the market when next yearís June contract commences trading. (Kolb Ch3)

(a) Complete the following table showing the open interest for the contract.

Date	Buyer	Seller	Contracts	Price	Open Interest
July 6	A	B	5	$294.50
July 6	C	B	10	$294.00
July 6	Settlement Price			$294.00
July 7	D	A	10	$293.50
July 7	B	D	5	$293.80
July 7	Settlement Price			$293.80
July 8	B	A	7	$293.70
July 8	Settlement Price			$299.50

(b) Calculate the gains and losses for Trader A. Assume that at the time of each change in position, Trader A must bring the margin back to the initial margin account. Compute the amount in Trader Aís margin account at the end of each trading day. Will Trader A get a margin call? If so, when and how much additional margin must be posted?

Answer 1

As the problem didn't told about the brokerage so we are ignoring the brokerage when ever we need to calculate the profits in the solution.

a) open interest means the number of contracts of a stock or commodity presently in open position in the market in futures and option contracts

transactions:

july 6th

B sells A 5 contracts means open interest is 5 ( A long side and B short side of same contracts )

B sells C 10 contracts means open interest is 15 ( 5+10) ( b sold total 15 contracts)

settlement for the day and open interest 15 is carrying to the next day as the contract is not expiring.

july 7th

A sells D 10 contracts of which he already had 5 contracts bought from B so effective 5 new contracts are opened

so open interest is 20( 15 carried from previous day +5)

D sells 5 contracts to B , of which D already had 10 contracts so effective contracts to be newly created is -5 ( because B also 15 short positions ) so effective open interest is 20-5 = 15

settlement open interest is 15

july 8th

A sells 7 contracts to B of which a already had 5 short contracts and b is in shrt of 10 contracts hence open positions to be open is( newly created) +7 so open interest is 15+7 = 22

settlement open interest is also 22

b)

there are 3 trades of a

1) A bought 5 contracts of 100 lot size at 294.5 settlement for the day is 294 means 0.5$*100 = 50$ shuld be decrease from initial margin (1013$ *5) = 5065$

5065-50= 5015$ didnt fall below the maintenance margin of 750*5 so no call required to be made for additional margin

margin required is 1013*5= 5065$ to trade 5 lots

2) A sells 10 contracts for 293.5$ of which 5 was bought at 294.5 hence 1$ loss for 5 contracts means 1*100= 100$

1013-100 =913 which is above 750$ no call of additional margin required

margin required is only 5 open positions so same 5065$ required +100$ loss total 5165$

days loss is 0.3 * 100 = 30$ loss no need to call 913-30= 883$

3) a sells 7 contracts at 293.7

he already in short postion of 5 contracts and again selling 7 more contracts means 7 more open positions 1013*7 =7019 +5065= 12084 required as initial margin

and loss profit

0.1*5*100 = 50$ for carrying contracts and

0.2*7*100= 140$ for new short positions

so no need to call additional margin