Question

You purchased 2 Soybean Oil futures contracts today at the settlement price (labeled as “Settle”) listed as following.                

Soybean Oil (CBT) 60,000 lbs.; cents per lb.
						Lifetime
	Open	High	Low	Settle	Change	High	Low	Open Interest
Oct.	15.28	15.33	15.25	15.29	-.02	20.35	15.25	7,441

Part I.

If there is a 10% initial margin requirement on total value of underlyings, how much do you have to deposit? Maintenance margin requirement is $600 for each contract. In what situation will you receive a margin call from your broker?

Part II.

Assume the volatility of Soybean Oil immediately increases 20%. How will it impact Futures price? How will it impact investor’s margin account requirement? Explain your answer.

Answer 1

The answers are shown below.DayFutures PriceProfit/Loss per lb.Total Value of ContractMark-to-Market Settlement0$0.1529n.a.$0.1529*60,000=$9,174n.a.1$0.1527$0.0002$0.1527*60,000 = $9,162$9,162-9,176=-$122$0.1540$0.0013$0.1540*60,000 = $9,240$9,240-9,162=$783$0.1597$0.0057$0.1597*60,000 = $9,582$9,582-9,162=$342The total value of the contract is $9,174, as shown in the table. If there is a 10% margin requirement, you will have to deposit $917.40 in cash or securities.The contract is marked to market daily and profits or losses are posted in the account. The contract keeps pace with market activity and doesn't change value all at once at the maturity date. The marking-to-market process protects the clearinghouse because the margin percentage is calculated daily and if it falls below the maintenance margin a margin call can be issued. If the investor doesn't meet the call the clearinghouse can close out enough of the trader's position to restore the margin.