Question
Suppose the initial margin on heating oil futures is $14,300, the maintenance margin is $10,000 per contract, and you establish a long position of 16
Suppose the initial margin on heating oil futures is $14,300, the maintenance margin is $10,000 per contract, and you establish a long position of 16 contracts today, where each contract represents 33,000 gallons. Tomorrow, the contract settles down $.10 from the previous days price. Are you subject to a margin call? What is the maximum price decline on the contract that you can sustain without getting a margin call? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 3 decimal places.)
This is the incorrect answer I received:
Answer: If the contract settles down, a long position loses money.
The loss per contract is: 33,000*$.10 = $3300, so when the account is marked-to-market and settled at the end of the trading day, your balance is $11000, which is more than the maintenance margin. The minimum price change for a margin call is $1000 = 33,000*X
X= $.03030
= 3.030 cents per gallon
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started