Question

At the end of day 0, you go short in 5 futures contracts; each contract is for a single unit of an underlying commodity with a futures settlement price at the end of day 0 of $220. This is the futures price for you at the end of day 0, therefore there is no marking to the market for you on that day. The initial margin is $10 per contract and the maintenance margin is $8. Over the following three trading days, this futures has end-of-day settlement prices of $218 at t=1, $219 at t=2, $221 at t=3. If there is a margin call during the three days, what is the variation margin and on which day do you have to pay it?

$10 on the morning of day 2

$10 on the morning of day 3

$15 on the morning of day 2

$15 on the morning of day 3

No margin call occurred

Answer 1

In this case $15 is required to be paid on the morning of day 3.

Initial margin is $10 and maintanence margin is $8.

When an individual shorts the future, the gain is made when the price fall. At the end of day 0, the price is $220 and no mark to market is done.

On Day 1 , the price falls to $218 and therefore, the individual who has position of short in future stoods to gain by $2. No of securities in contract are 5. Hence, total market to margin at end of day 1 at $10.

On Day 2, the price rises to $219 and hence the individual short in future stoods at lose by $1 as the price has gone up. Hence he stoods to lose $5 at the end of day 2.

On Day 3, the price rises again and reaches the level of $221 which is $2 rise from $219 and the individual who is short on futures, needs to pay $10.

Hence the individual needs to pay a total of $5+$10 that is $15 at the morning of day 3 for the loses ocurred.

Hence correct option is D- $15 on the morning of day 3.