Question

Suppose on March 1 you take a long position in a June crude oil futures contract at $50/barrel (contract size = 1,000 barrels) . How much cash or risk‐free securities would you have to deposit to satisfy an initial margin requirement of 5%? Calculate the values of your commodity account on the following days, given the following settlement prices:

3/2 $50.50

3/3 50.75

3/4 50.25

3/5 49.50

3/8 49.00

3/9 50.00

If the maintenance margin requirement specifies keeping the value of the commodity account equal to 100% of the initial margin requirement each day, how much cash would you need to deposit in your commodity account each day?

Answer 1

Initial margin requirement = (contract price*contract size)*initial margin requirement rate = ($50*1000)*5% = $50,000*5% = $2,500

$2,500 cash or worth of risk-free securities needs to be deposited for initial margin requirement.

Value of account on the following days:

3/2 - ($50.50*1000)*5% = $50,500*5% = $2,525

Value of account on 3/2 is higher than initial margin of $2,500. so, no cash needs to be deposited in the account.

3/3 - ($50.75*1000)*5% = $50,750*5% = $2,537.5

Value of account on 3/3 is higher than initial margin of $2,500. so, no cash needs to be deposited in the account.

3/4 - ($50.25*1000)*5% = $50,250*5% = $2,512.5

Value of account on 3/4 is higher than initial margin of $2,500. so, no cash needs to be deposited in the account.

3/5 - ($49.50*1000)*5% = $49,500*5% = $2,475

Value of account on 3/5 is lower than initial margin of $2,500. so, $2,500 - $2,475 = $25 cash needs to be deposited in the account.

3/8 - ($49.00*1000)*5% = $49,000*5% = $2,450

Value of account on 3/8 is lower than initial margin of $2,500. so, $2,500 - $2,450 = $50 cash needs to be deposited in the account.

3/9 - ($50*1000)*5% = $50,000*5% = $2,500

Value of account on 3/9 is equal to initial margin of $2,500. so, no cash needs to be deposited in the account.