Taryn Arsenault is a regular commodities speculator. She is currently considerin

Question

Taryn Arsenault is a regular commodities speculator. She is currently considering a short position in July oats, which are now trading at 248. Her analysis suggests that July oats, should be trading at about 240 in a couple of months. Assuming that her expectations hold up, what kind of return on invested capital will she make if she shorts 3 July oats contracts (each contract covers 5000 bushels of oats) by depositing an initial margin of $540 per contract? Her return on invested capital is __ %?

Explanation / Answer

Return = ( 248 - 240 ) = $ 8 per contract

Total Contracts = 3 Therefore total gain = 3 contracts * $ 8/contract = $ 24

Amount as initial margin = $ 540 * 3 = $ 1620

Return on investment = 24 *100 /1620

= 1.48 %

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