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On 3 May 2019, a speculator buys five July 2019 US Soybeans futures contracts at a...

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Finance

On 3 May 2019, a speculator buys five July 2019 US Soybeansfutures contracts at a price of 842 cents per bushel. Thespeculator closes out her futures position on 30 May 2019 at aprice of 888.88 cent per bushel. The US Soybeans futures contractis written on 5,000 bushels of soybeans and, for a speculator, theinitial and maintenance margins are $3,375 and $2,500 per contractrespectively. Assume that the speculator does not withdraw anyexcess out of their margin account.

  1. At the time the futures position is established, what is theminimum price movement that will generate a margin call? Reportyour answer in cents with 2 decimal places (2 dps).
  2. Construct a table as below to illustrate the dailymarking-to-market (and final settlement) of the speculator’soverall futures position.

Table Q2

Day

Date

Trade price (¢)

Settlement price (¢)

Daily gain ($)

Cumulative gain ($)

Margin account balance ($)

Margin call ($)

1

1

2

3

…

c. What is the overall profit/loss of the speculator? Decomposethe overall profit/loss into two components: (i) total margincalls, and (ii) the change in the margin account balance.

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