An investor takes a short position of 10 futures contracts at $90 on Day 0. The initial margin is $10 per contract. The maintenance margin is $5 per contract. On Day 1, the futures settlement price is $96 and on Day 2, the futures settlement price is $92. At the end of Day 2, the cash ending balance in the margin account is closest to: A. $80. B. $120. C. $140. ------------ Please show ur calculation. Trying to understand these types of questions. thx
Taking short position: Initial Margin = 10 x 10 = 100 Maintenance margin = 10 x 5 = 50 first day: Price goes up (Loss) 90-96 = 6 multiply by # contracts so 6 x 10 = 60 (subtract initial margin by loss) 100 - 60 = 40 this is below the maintenance margin. Since its below 50 there will be a margin call that needs to be met the next day. Brings the price back up to initial margin to 100 second day: Price goes down (gain) 96-92 = 4…4 x 10 = 40 total cash balance = 100 + 40 = 140 your answer should be C
Thanks! Freakin’ straight forward!