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	Spot Price of the Underlying
0	82	80
1	84	81
2	78	80
3	73	75
4	79	77
5	82	86
6	84	90

(1)  Suppose you receive margin call in the beginning of each day, when 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

1]

Initial margin = $5 per contract. For 20 contracts, it is $100

the maintenance margin is $2 per contract. For 20 contracts, the maintenance margin is $40. If the margin in the account equals or falls below $40, a margin call will be made. Amount of margin call = amount required to bring the margin account back to $100 (initial margin)

The first day that you will receive margin call is Day 2

2]

total amount put in = initial margin + total margin calls = $100 + $80 + $100 = $280

3]

Total profit = $40.

This is (Future settlement price on day 6 - Future settlement price on day 0) * number of contracts = ($84 - $82) * 20 = $40

4]

Ending balance on day 3 = 0