Question

AEC4063 Futures and Options - Homework 2 Chapter 1 Name: ID: 1. You have bought a cor contract (5,000 bushels, 2007 March Delivery) at a price of $4.04 per bushel on January 31, 2007. Several days later, your broker inform you that you have incurred a paper loss of SSOO, necessitating a margin call. What was the settlement price of corn on the day your loss reached $500? 2. NYMEX: www.nymer.com Light Sweet Crude Oil Trading (1 contract, 1000 barrels), Initial Margin: 54050/contract, Maintenance margin: S3000/contract, (1) Let's assume a speculator bought I contract (2007 March Delivery) on January 18, 2007 at $55.25/barrel, how much money did he need to buy the contract? (2) Suppose on January 25, the price of oil fell to $50.25/barrel. How much money did he need to add into his account? (3) Suppose on January 31, the price of oil increase. He sold the contract at $57.98/barrel. What is his account balance (suppose he did not withdraw any money from the account)? How much money did he make?

Answer 1

1. As 1 futures contract of 5000 bushels was bought and a paper loss of $500 was incurred, it means that the loss per bushel was $500/5000 bushel = $ 0.1 per bushel

Hence, the price must have fallen and would have settled at $ 4.04 (purchase price per bushel) less loss ($0.1 per bushel)

So, the settlement price on the day was $4.04- $0.1 = $3.94 per bushel