Question
1. Michael takes a short position in 20 futures contracts on a day. The initial margin is $2,000 per contract, and the maintenance margin is
1. Michael takes a short position in 20 futures contracts on a day. The initial margin is $2,000 per contract, and the maintenance margin is $1,500 per contract. Each day after the market is closed, if the balance of Michael's margin account is below the maintenance margin, he is required to add funds into his margin account to make its balance equal to the initial margin. The futures prices on the following trading days are as below (Michael takes his position on day 0):
Trading day | Settlement price per contract ($) |
0 | 10,000 |
1 | 10,200 |
2 | 9,800 |
3 | 10,100 |
4 | 10,200 |
5 | 10,450 |
6 | 10,550 |
7 | 10,300 |
8 | 10,750 |
9 | 11,100 |
10 | 10,900 |
a. On which trading days does Michael receive a margin call? b. How much in total is Michael required to add to his margin account from day 0 to day 10? c. What is the balance of Michael's margin account at the end of day 10? d. What is Michael's profit if he closes out his position right before the market closes on day 10 at the settlement price of day 10?
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