Question

You purchased 2 Soybean Oil futures contracts today at the settlement price (labeled as “Settle”) listed...

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.

Homework Answers

Answer #1

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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