Question

a)On Dec. 4, 2019, the nearby S&P 500 contract was trading at 3114.50. What was the total value represented by one S&P contract as of the day of that close?

b) If you think the S&P index is likely to go up in the near future, would you buy or sell an S&P futures contract?

c) Assume that in two weeks, the contract closes at 3200. What would be the dollar amount of your profit or loss, given the action you answered for part b? Explain how you arrived at your answer.

d) Currently, the initial margin requirement for an S&P futures contract is $34,650, and the maintenance margin requirement is $31,500.

Given the profit you found in part c, calculate your percentage profit on the trade, given what you had invested (the initial margin requirement).

e) Assume now that the trade went in the opposite direction for that specified in part c. At what contract price would you have gotten a margin call? Explain. How much additional margin will you need to deposit in your account? Explain (looking for this question)

Answer 1

A) Contract size of S&P Futures is 250 units , hence total value represented by one S&P contract = Contract size x Price of S&P furure contract
=250 x 3114.50
=778625 $

B) If one is expecting S&P index to go up in future, then one should buy S&P futures contract

C) Profit on futures contract = (Market price as at expirt - contracted price) x contract size
=(3200-3114.50) x 250
= 85.50 x 250
=21375 $

D) % Profit = Profit / Initial margin
= 21375/34650
=61.69%

E)

Margin call will occur when account value will fall below 31500$
Thus loss that must occur to bring account value 31500$ = 34650-31500 = 3150$
Thus points that S&P futures must fall = 3150/250
=12.6
Thus S&P future price must fall below 3101.9 $ ($3114.5-$12.6) to get margin call

one must have to bring in cash which makes account value equal to maintenance margin after margin call