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Options and Futures - Percentage Gain/Loss and Maintenance M

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1) The contract for grain is $5,000 per bushel. You purchase a contract of corn at $4.40 per bushel with an initial margin requirement of 8% of the dollar value of the contract. The price goes up to $4.49 in one month.

a. Calculate the percentage of gain based on price appreciation.

b. Calculate the percentage of gain based on initial margin.

c. What is the annualized gain based on initial margin?

2) Alex Martinez purchases a contract of silver at $12.00 per once and at the same time he purchases a contract of sugar at $0.191 per pound. If the price of silver goes down to $11.94 and sugar goes up to $0.196. By how much will Alex have an overall net gain or loss?

3) With a 5,000 bushel contract for $15,000 assume the initial margin requirement is $1,000 and the maintenance margin is 70% of the initial margin.

a. What price would a bushel have to fall to in order to trigger a maintenance call?

b. How much money would have to be brought in?

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This solution is comprised of a detailed explanation to calculate the percentage of gain based on price appreciation, the percentage of gain based on initial margin, and answer what is the annualized gain based on initial margin.

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1) The contract for grain is $5,000 per bushel. You purchase a contract of corn at $4.40 per bushel with an initial margin requirement of 8% of the dollar value of the contract. The price goes up to $4.49 in one month.

a. Calculate the percentage of gain based on price appreciation.

Price appreciation = (new price - initial price)/initial price x 100
(4.49 - 4.40)/4.40 x 100 = 2.05%

b. Calculate the percentage of gain based on initial margin.

I ...

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