Question

1. A silver futures contract requires the seller to deliver 5,000 Troy ounces of silver. Henry sells four July silver futures contract at a price of $16 per ounce. The initial margin is $6,000 per contract and the maintenance margin is $2,500 per contract. What is the futures price per ounce at which Henry would receive a margin call?

Answer 1

Margin Call price = Initial Purchase price * ( 1 - Initial Margin / 1 - Maintenance Margin)

Initial Margin in Percentage = Initial Margin Per contract / Total contract value

= 6000 / (5000 * 16)

= 6000 / 80000

= 0.075 or 7.5%

Maintenance margin = Maintenance Margin Per contract / Total contract value

= 2500 / 80000

= 0.03125 or 3.125%

Margin Call price = $16 * ( 1 - 7.5% / 1 - 3.125%)

= 16 * ( 0.925 / 0.96875)

= 16 * (0.95483)

= $15.27741 Per ounce

So, The Future price per ounce is $15.27741