Suppose the initial margin on heating oil futures is $20,400, the maintenance ma

Question

Suppose the initial margin on heating oil futures is $20,400, the maintenance margin is $18,000 per contract, and you establish a long position of 10 contracts today, where each contract represents 29,000 gallons. Tomorrow, the contract settles down $.04 from the previous day’s 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.)

Suppose the initial margin on heating oil futures is $20,400, the maintenance margin is $18,000 per contract, and you establish a long position of 10 contracts today, where each contract represents 29,000 gallons. Tomorrow, the contract settles down $.04 from the previous day’s 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.)

Explanation / Answer

Total Loss = 0.04*29000*10=11600

Since the value of the magin is 20,4000-11600= 192400

Margin call would be made if the amount falss below 180000, hence margin call would not be made

Which is below initial margin of 18000 hence margin call would be made

x*29000*10 =240000

x= 24/290 =0.082

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