Question

Consider a hypothetical futures contract in which the current price is $82. The initial margin requirement is $5, and the maintenance margin requirement is $2. You go long 20 contracts and meet all margin calls but do not withdraw any excess margin.

The settlement price and the spot price of the underlying from day 0 to day 6 look like the following:

Day	Settlement Price
0	82
1	84
2	78
3	73
4	79
5	82
6	84

(1)  Suppose you receive margin call in the end of each day. You need to put up additional fund into your account the next day whenever the previous day your account is equal and less than maintenance margin. The first day that you will receive margin call should be Day .

(2) The total amount that you are going to put in your account, from day 0 to day 6, will be

(3) The total loss and profit from Day 0 to Day 6, if the long holder always stays in the market, should be  

(4) The ending balance in Day 3 should be

Answer 1

Theree types of margis

Intital margin- The margin to be deposited at the inception of contract. In this problem it is $ 5 * 20 Contracts = $ 100

Maintainance Margin- The margin account balance level at which we should deposit variation margin. In this problem it is $ 2 * 20 Contracts = $ 40

Variation Margin - When the margin account balance goes below maintenance margin we should deposit variation margin. Variation margin = Initial - Balance in Margin account

A	B	C	D = (C-D)*20	E	F = H + E	G	H = F + D
Day	Buy	Sell	Profit or Loss	Deposit (Variation Margin)	Opening Balance	Withdrawl	Closing Balance
1	82	84	40	0	100	0	140
2	84	78	-120	0	140	0	20
3	78	73	-100	80	100	0	0
4	73	79	120	100	0	0	120
5	79	82	60	0	120	0	180
6	82	84	40	0	180	0	220

Part 1) We have deposit in the begin of day 3 since we have balance is below maintainance margin

Amount to deposited in day 3 = Inital margin - Closing balance of Day 2

= 100 - 20 = 80

Amount to deposited in day 4 = Inital margin - Closing balance of Day 3

= 100 - 0 = 100

Part 2) the total amount to be kept = Initaial margin + amonunt deposited in day 3 + amount deposited in day 4

= 100 + 80 + 100

= 280

Part 3)

Total loss from 0 to 6  =  -100 + -120 = -220

Total Profit from 0 to 6 = 40 + 120 + 60 +40 = 260

Net profit = 260 -220 = 40

Alternatively net profit can be calculated by using Closing balance at day 6 - total deposit made

= 320 -280 = 40

Part 4) Day 3 ending Balance is  0

Please let me know if you need any further assistance