You purchased 2 Soybean Oil futures contracts today at the settlement price (labeled as “Settle”) listed as following.
Soybean Oil (CBT) 60,000 lbs.; cents per lb. |
||||||||
Lifetime |
||||||||
Open |
High |
Low |
Settle |
Change |
High |
Low |
Open Interest |
|
Oct. |
15.28 |
15.33 |
15.25 |
15.29 |
-.02 |
20.35 |
15.25 |
7,441 |
Part I.
If there is a 10% initial margin requirement on total value of underlyings, how much do you have to deposit? Maintenance margin requirement is $600 for each contract. In what situation will you receive a margin call from your broker?
Part II.
Assume the volatility of Soybean Oil immediately increases 20%. How will it impact Futures price? How will it impact investor’s margin account requirement? Explain your answer.
If there is a 10% initial margin requirement on total value of underlyings, how much do you have to deposit?
Quantity = 60,000 lbs
No. of future contracts = 2
Rate of Settlement = 15.29
Required Initial margin = 10%
Amount of Deposit = 2 * 60,000 * ( 15.29 / 100 ) * 10%
= $1,834.80
Maintenance margin requirement is $600 for each contract. In what situation will you receive a margin call from your broker?
When there is loss, then margin call occurs
Amont of loss to trigger margin call per contract = ( 1,834.80 / 2 ) - 600
= $317.40 per contract
Loss of $317.40 per contract means decrese in price of soyabean per lb = 317.40 / 60,000
= 0.00529 or 0.53 cent per lb
New soyabean price is 15.29 - 0.53 = 14.76 per lb margin call occurs.
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