PQU stock trades for $56/share on 9/30, but you believe the stock price will dec
ID: 2795668 • Letter: P
Question
PQU stock trades for $56/share on 9/30, but you believe the stock price will decline over the next few days. You decide to use five futures contracts to trade based on your belief. Futures contracts on PQU have 125 shares attached. The price for PQU futures on 9/30 is $54/share. Your broker requires an initial margin of $3000 per contract and a maintenance margin of $1500 per contract.
The price for PQU futures is $67 on 10/2. Find your ending margin balance on 10/2. Assume deficits are eliminated to keep the position open.
6875
23,175
15,000
21,874.5
6875
23,175
15,000
21,874.5
Explanation / Answer
Margin balance on 10/2 = Initial margin + Fluctuation in future price for two days
= Initial Margin + ( Future price on 10/2 - future price price on 9/30 ) * No. of contracts * shares in a contract
= $ 15,000 ( Refer working Note ) + ( $ 67 - $54 ) * 5 * 125
= $ 15,000 + ($ 13 * 5 * 125)
= $ 15,000 + $ 8,125
= $ 23,125
Working Note:
Initial Margin = Margin per contract * No. of contracts
= $ 3,000 * 5
=$ 15,000
Hence 2nd option is correct
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