Question

A trader buys two July futures contracts on frozen orange juice. Each contract is for the delivery of 15,000 pounds.The current futures price is 120 cents per pound, the initial margin is $6,000 per contract, and the maintenance margin is $4,500 per contract. What price change would lead to a margin call

Answer 1

Answer:

1.10 dollars or 110 cents

Explanation:

We have a fall in the balance margin by contract.

We calculate the change as:

-1,500 =[ future price - (1.20)]*15000

We got 1.20 by dividing 120 by 10.

-1500 = [future price - (1.20)]*15000

Divide through by 15000

-1500/15000 = future price - 1.20

-0.10 = future price -1.20

Collect like terms

-0.10+1.20 = future price

1.10 = future price

Therefore the margin is $1.10 or 110 cents