Question

An investor buys a crude oil WTI future contract at a price of $42.64 per barrel. The crude oil contract is for 1,000 barrels. That day the contract settles at 43.90 and the following three days’ settlements are 42.60, 41.50 and 42.10. The contract initial margin is $3,300 and the maintenance margin is $2,800; Calculate and show the marking to market cash flows and remaining margin at the end of each day. Calculate the investor profit.

Answer 1

Initial price = $42.64

Contract size = 1,000 barrels

Day End of day Price Profit Beginning margin Ending margin

Day	End of day price	Marking to market cash flow	Beginning margin	Ending margin
Day 0	43.90	=(43.90 - 42.64) * 1,000 = $1,260	3,300	=3,300 + 1,260 = $4,560
Day 1	42.60	= (42.60-43.90) * 1,000 = -$1,300	4,560	=4,560 - 1,300 = $3,260
Day2	41.50	= (41.50 - 42.60) * 1,000 = -$1,100	3,260	= 3,260 - 1,100 = $2,160
Day 3	42.10	=(42.10 - 41.50) * 1,000 = $600	2,160	= 2,160 + 600 = $2,760

Marking to market cash flow = (End of day price - Privious day price) * Contract size

Beginning margin = Ending margin of previous day

Ending margin = Beginning margin + Marking to market cash flow

Investor profit = (Day 3 price - Initial price) * Contract size

Investor profit = (42.10 - 42.64) * 1,000

Investor profit = -0.54 * 1,000

Investor profit = -$540