Question

SST stock traded for $38/share on 4/1. You believe the stock will appreciate over the next few days and you decide you use three futures contracts to trade based on your belief. Futures contracts on SST have 300 shares attached. SST futures traded for $41/share on 4/1. The initial and maintenance margins are $1800 and $1200 per contract, respectively.

Find your initial margin balance the day you opened your position.

		5400
		3600
		1800
		1200

The price for SST futures is $40 on 4/2. Find your ending margin balance on 4/2. Assume deficits are eliminated to keep the position open.

		3600
		7200
		6300
		None of the above

The price for SST futures is $38.5 on 4/3. Find your ending margin balance on 4/3. Assume deficits are eliminated to keep the position open. Do not use the dollar sign when entering your answer.

Find your return on invested capital if you close your position on 4/4 when SST futures trade for $44/share.

		.50
		.3529
		.4706
		.6667
		None of the above

Answer 1

Initial Margin per contract = $1800 per contract

Total number of contracts purchased = 3

Total Initial margin = 1800*3 = $5400

Initial Margin Balance = $5400

Futures price is $40 on 4/2.

Decrease in value = (41-40)300*3 = 900

Ending Margin Balance = 5400-900

Ending Margin Balance = $4500

The price for SST futures is $38.5 on 4/3.

Decrease in Value = (40-38.5)*300*3 = 1350

Ending Margin Balance = 4500-1350

Ending Margin Balance = $3150

Here Maintenance margin = 1200*3 = $3600

Margin Balance is below maintenace margin. So Investor will deposit variation margin to reach again intial margin.

Variation Margin = 5400-3150 = $2250

on 4/4 when SST futures trade for $44/share.

So Increase in Value = (44-38.5)*3*300 =$4950

Margin Balance = 5400 + 4950 = $10350

Date	Price	Daily Gain/Loss	Margin Balance	Var. Margin	Cum. Var. Margin
4/2	40	-900	4500	0	0
4/3	38.5	-1350	3150(< Maintanance Margin)	2250	2250
4/4	44	4950	10350	0	2250

Selling price = 300*3*44 = $39,600

Buying price = 300*3*41 = $36,900

Net Gain = $2,700

Total money already paid to the member/exchange

= Initial margin + Cumulative Variation margin

= 5400 + 2250 = $7650

Net money received back by investor = 7650 + 2700 = $10,350

Return on Investment of $7650 = 2700/7650

Return On Investment = 35.29%