Question

Mark to market a short Eurodollar futures position with June delivery at 104.5 if daily IMM Index settlement prices are

Day 1: 103.50

Day 2: 110

Day 3: 98.75

Day 4: 100

List the margin account balances at the end of each trading day and specify (i) whether an additional margin is required on any given day and, (ii) if a margin call is issued, how much must be deposited to your margin account. Assume that the initial margin is $5,000; the maintenance margin is $3,000, and the tick value is 1 b.p. = $30.

Answer 1

The maintenance margin is $3,000

Day 0: Price = 104.5; Margin = 5000

Day 1: Price = 103.5; Loss = (104.5-103.5) = -1.00= 100 bp*30 = 3000; Margin = 5000 - 3000 = 2000, Since this is less than Maintenance margin, margin call happens. Variation margin (the amount that needs to be deposited) = 3000 - 2000 = 1000, i.e. the amount required to bring the margin back to the initial margin level

Day 2: Price = 110; Profit = (110-103.5) = 6.5 = 650 bp*30 = 19500; Margin = 3000+19500 = 22500

Day 3: Price = 98.75; loss = (110-98.75) = 11.25 = 1125*30 = 33750; Margin = 22500 - 33750 = -11250. Since this is less than Maintenance margin, margin call happens. Variation margin (the amount that needs to be deposited) = 11250+3000 = 14250, i.e. the amount required to bring the margin back to the initial margin level

Day 4: Price = 100; Profit = (100-98.75) = 1.25 = 125*30 = 3750; Margin = 3000 + 3750 = 6750

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