You have decided to speculate that the price of crude oil will rise. You have en
ID: 2650090 • Letter: Y
Question
You have decided to speculate that the price of crude oil will rise. You have entered into a position of 4 contacts of Light Sweet Crude Oil (1,000 barrels per contract, trades in dollars and cents per contract) at a price of $58.25. The initial margin for the contact is $2,500 and the maintenance margin is $2,200. If the equity in your account was $15,000 when you entered the position, at what price would you get a margin call? If the price of contract falls to $56.08, would you get a margin call. If so how much will the call be for?
Explanation / Answer
You have decided to speculate that the price of crude oil will rise. So you have bought contracts.
Answer 1
Particulars
Amount
No of contracts of light sweet crude oil
4
One contract size (barrels)
1000
Total contract value
233000
(1000*4*58.25)
Equity balance in your account ($)
15000
Initial margin ($)
10000
(2500*4)
Maintenance margin ($)
8800
(2200*4)
Maximum permissible fall in margin balance ($)
6200
($15000-$8800)
contract value required to trigger margin call (a)
226800
($ 233000 - $ 6200)
Total contract underlying crude (barrels) (b)
4000
Price (a/b)
56.70
Answer : If the equity in your account was $15,000 when you entered the position, at $56.70 price you would get a margin call.
Answer 2
Particulars
Amount
No of contracts of light sweet crude oil
4
One contract size (barrels)
1000
Total contract value at $ 58.25 price ($) (a)
233000
(1000*4*58.25)
Total contract value at $ 56.08 price ($) (b)
224320
(1000*4*56.08)
Total fall in contract value ($) (a-b) (c)
8680
Initial margin ($) (d)
10000
(2500*4)
Margin money balance at $ 56.08 price
1320
(d-c)
Maintenance margin ($)
8800
(2200*4)
Margin call will be triggered as balance ($ 1320) falls below maintenance margin ($ 8800)
Margin call amount ($)
8680
(10000-1320)
Answer : If the price of contract falls to $56.08, you would get a margin call. Call would be of $ 8680.
Particulars
Amount
No of contracts of light sweet crude oil
4
One contract size (barrels)
1000
Total contract value
233000
(1000*4*58.25)
Equity balance in your account ($)
15000
Initial margin ($)
10000
(2500*4)
Maintenance margin ($)
8800
(2200*4)
Maximum permissible fall in margin balance ($)
6200
($15000-$8800)
contract value required to trigger margin call (a)
226800
($ 233000 - $ 6200)
Total contract underlying crude (barrels) (b)
4000
Price (a/b)
56.70
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