It is now October 2013. A company anticipates that it will purchase 1 million pounds of copper in each of February 2014, August 2014, February 2015, and August 2015. The company has decided to use the futures contracts traded in the COMEX division of the CME Group to hedge its risk. One contract is for the delivery of 25,000 pounds of copper. The initial margin is $2,000 per contract and the maintenance margin is $1,500 per contract. The company€™s policy is to hedge 80% of its exposure. Contracts with maturities up to 13 months into the future are considered to have sufficient liquidity to meet the company€™s needs. Devise a hedging strategy for the company.
Assume the market prices (in cents per pound) today and at future dates are as follows. What is the impact of the strategy you propose on the price the company pays for copper? What is the initial margin requirement in October 2013? Is the company subject to any margin calls?

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Oct 2013 Feb 2014 Aug 2014 Feb 2015 Aug 2015 372.00 369.00 365.00 Date Spot Price Mar 2014 futures price 372.30 369.10 Sept 2014 futures price 372.80 370.20 364.80 Mar 2015 futures price Sept 2015 futures price 377.00 388.00 370.70 364.30 376.70 364.20 376.50 388.20