Question
Jose took a short position on a CME random-length lumber futures contractwhose price was $46,805. At the same time, his cousin Rodrigo took a long
Jose took a short position on a CME random-length lumber futures contractwhose price was $46,805. At the same time, his cousin Rodrigo took a long position on the contract. The initial margin requirement was $1,898, and the maintenance margin was $1,265. Ten days later, there have been no margin calls, and the futures price drops to $45,760. One day later, the futures price rebounds, soaring to $47,685. It stays level at this price for ten more days, then drops suddenly to $44,770. Just after this second drop, and before thereare any further price changes, Jose and Rodrigo each close their positions.Suppose that Jose and Rodrigo each only had outflows as required by the ini-tial and maintenance margin requirements, and there was no interest on themargin account. Describe Joses cashflows and Rodrigos cashflows, and then calculate the daily yield rate for each of the cousins.
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