Question

A trader plans to buy three Aug. crude oil futures contracts. Each contract is for the delivery of 1,000 barrels of crude oil. The current futures price is $50 per barrel, the initial margin is $8,000 per contract, and the maintenance margin is $6,000 per contract. (a) What price change would lead to a margin call? (F=$?) (b) Under what circumstances could $4,500 be withdrawn from the margin account? (F=$?)

Please give me the process, thank you!

Answer 1

a]

Price change that would lead to margin call = (initial margin per contract - maintenance margin per contract) / barrels per contract

Price change that would lead to margin call = ($8,000 - $6,000) / 1,000 = $2.00

If the futures contract price falls by $2 to $48 per barrel, a margin call would be made

b]

To withdraw $4,500 from the margin account, a profit of $4,500 has to be earned;

Profit earned = (futures sale price - futures purchase price) * barrels per contract * number of contracts purchased

$4,500 = (futures sale price - $50) * 1,000 * 3

futures sale price = ($4,500 / (1,000 * 3)) + $50

futures sale price = $51.50

If the futures price rises to $51.50, the contract can be sold and $4,500 can be withdrawn from the margin account