Can anybody please help me with the below problem? Many thanks. An investor holds a short position in four September gold futures contracts. Each gold contract is for delivery of 100 ounces of gold. When the contract was entered into on day zero, the futures price was $350 per ounce. The initial margin is $1750 per contract and the maintenance margin is 1312.50 per contract. The following table gives information on the price of gold for September delivery over a 4-Day period. Day Closing future price () 1 345.50 2 348.75 3 355.50 4 356.25 What will the variation margin be on the first day a margin call is received?
A margin call is made when the margin account gets bellow the maintenance margin after marked to market. For a short position, this might happen on the third or forth day when the price of the gold ounce goes up. The third day is a loss marked on the margin account of (355.5-350)*100=550 per contract, bringing the margin account to 1750-550=1200. Since this is lower than 1312.5, a margin call will be received. In futures, the margin call is for a margin variation that reinstates the initial margin, so the call will be made for 4 (contracts)*550(which is 1750-1200, to bring back the margin account to the initial margin level)=2200. Is this the answer?
2200, Yep it is correct, thanks!
dont we have to account for additions to the margin account in days 1 and 2 where the position is in the money?
They get reversed with the increase in price.