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You expect the stock market to decline, but instead of selling a stock short you decide...

You expect the stock market to decline, but instead of selling a stock short you decide to sell a stock index futures contract based on the New York Stock Exchange Composite Index. The index is currently 138, and the contract has a value that is 500 times the amount of the index. The margin requirement is $3,500 and the maintenance margin requirement is $1,000.

1. When you sell the contract, how much are you required to put up?

2. What is the value of the contract based on the index?

3. If after one week of trading the index stands at 140, think about what has happened to your position. How much have you lost or profited?

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Answer #1

1.
=3500

2.
=138*500
=69000.0000

3.
=500*(138-140)
=-1000.0000

Loss of 1000 as index has risen

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