A silver futures contract requires the seller to deliver 5,000 Troy ounces of silver. An investor sells one July selver futures contract at a price of $8 per ounce, posting a $2,025 initial margin. If the required maintenance margin is $1,500, the price per ounce at which the investor woudl first receive a maintence margin call is closest to: A. $5.92 B. $7.89 C. $8.11 D. $10.80 **The answer is C. $8.11. Why is it $8.11? I eliminated A and B immediately because he is shorting it, therefore the call price has to be above $8. Then I thought I should use: Trigger Price = P0 * (1 + Initial Margin %) / (1 + Maintenance Margin %) When I did this, I kept getting $8.64. Anyone know how to get $8.11?
Edited: Wrong solution, still wasn’t getting 8.11
You subtract from one if you LONG the position. You add to one if you SHORT the position. Even if you subtract from 1, you still don’t get $8.11 unfortunately.
you supposed to use the Long margin call formula initial margin % = 2025/$8 times 5000 ounces = .0506 maintenance margin % = 1500/ same above = .0375 plug everything into your formula you’ll get $8.11
That makes sense… Thanks.
40000(1.0506)/(1.0375) = 40505/5000 = 8.1
8((1+2025/40000)/(1+1500/40000))= 8.101 close additions welcome
OK I had all the conceptual stuff right, here is what I was doing wrong: To calculate initial and maintenance margin %, I would divide the dollars by 5000 instead of (5000*8). Careless errors, they will be the death of me. Movado, I think you meant use the SHORT margin call formula, not the Long.
Worst comes to worst just plug and chug.