Question

Problem 6: Computing the daily settlement for a future contract The current price of a gold oz is $1,331. The CCIR is 3%. The COMEX 100 GOLD FUTURES for March 2018 is $1,335. The details on the contract can be found in: https://www.cmegroup.com/trading/metals/precious/gold_contract_specifications.html

a. What is the size of the contract?

b. What is the margin requirement (initial and maintenance) for each contract traded?

c. Compute the amount of funds required to trade two COMEX 100 GOLD FUTURES.

d. Note: For this contract, the settlement (computation of gains or losses is daily at the end of afterhours trading session). Suppose you enter a long position in the contract on 01/22/2018. The following is the movement of the price of 1 troy oz of gold over the next four days:

i. 01/22/2018: $1,331 (this is the price when you enter the futures contract)

ii. 01/22/2018: $1,339

iii. 01/23/2018: $1,340

iv. 01/24/2018: $1,310 Compute the daily losses/gains. Compute the total payoff from holding the contract for each of these four days.

e. Repeat d) assuming that you are shorting a futures contract. Assume the same spot price and the same subsequent prices.

Answer 1

a) Size of the contract is 100 ounce

b) Margin Value = 1335 Price * 100 Ounce*3% Margin = $4005

c) Amount of funds for two contract = $4005 Margin amount * 2 contract = $8010

d) i) Closing Price - 1331 * 100 Ounce = Answer is 0.Since No Price movement

ii) 1339-1331*100 ounce = $800 Profit

iii) 1340-1331*100 ounce = $900 Profit

iv) 1310-1331*100 Ounce = -$2100 Loss

e) Since we are shorting,formula 1331-closing Price *100 ounce

i) Since no Price movement Answer is 0

ii) 1331-1339*100 ounce = -$800 Loss

iii) 1331-1340*100 ounce =-$900 Loss

iv) 1331-1310*100 Ounce = $2100 Profit