Question: Assume the current spot price for crude oil is $66.65 per barrel and the futures price for crude oil is $66.70 per barrel. A futures contract is for 1000 barrels.
On Monday, Stacey buys one futures contract from Ben. Both Stacey and Ben are speculators in this futures market, whose initial margin requirement is $7,500 and whose margin maintenance requirement is $5,500. For hedgers the initial margin requirement is the same as the margin maintenance requirement. Assume that Stacey and Ben will always keep the minimum required amount in their margin accounts. Also, assume (artificially) that no marking to market is done on the expiration date of the contract.
1. How much must Stacey deposit in her margin account in order to buy this futures contract?
2. How much must Ben deposit in his margin account in order to sell this futures contract?
On Tuesday, the spot price of oil is $65.40 per barrel and the price of the crude oil futures closes at $65.44 per barrel.
3. As a result of marking to market, how much will need to be transferred at the end of Tuesday from Stacey to Ben through their brokers and clearinghouse? (A negative amount means money needs to be transferred from Ben to Stacey.)
4. After the transfer in #3, how much will Stacey transfer into her margin account? (If she has to transfer money out of her account, put in a negative amount. Also, remember that Stacey wants to keep the minimum possible amount in her margin account.)
5. After the transfer in #3, how much will Ben transfer into his margin account? (A negative answer means he transfers money out of his account.)
6. What will be Stacey's margin account balance at the end of Tuesday?
7. What will be Ben's margin account balance at the end of Tuesday?
On Wednesday, the spot price of oil is $65.84 and the price of the crude oil futures closes at $65.87 per barrel.
8. As a result of marking to market, how much will need to be transferred at the end of Wednesday from Stacey to Ben through their brokers and clearinghouse? (A negative amount means money needs to be transferred from Ben to Stacey.)
9. After the transfer in #8, how much will Stacey transfer into her margin account on Wednesday? (A negative answer means she transfers money out of her account.)
10. After the transfer in #8, how much will Ben transfer into his margin account on Wednesday? (A negative answer means he transfers money out of his account.)
11. What will be Stacey's margin account balance at the end of Wednesday?
12. What will be Ben's margin account balance at the end of Wednesday?
On Thursday, the spot price of oil is $64.95 and the price of crude oil futures closes at $64.97 per barrel.
13. As a result of marking to market, how much must Stacey transfer to Ben at the end of Thursday through their brokers and clearinghouse? (A negative amount means money needs to be transferred from Ben to Stacey.)
14. After the transfer in #13, how much will Stacey transfer into her margin account on Thursday? (A negative answer means she transfers money out of her account.)
15. After the transfer in #13, how much will Ben transfer into his margin account on Thursday? (A negative answer means he transfers money out of his account.)
16. What will be Stacey's margin account balance at the end of Thursday?
17. What will be Ben's margin account balance at the end of Thursday?
On Friday (which is expiration of this futures contract), the spot price of oil is $65.12 and the futures price of oil is $65.12. Assume neither Stacey nor Ben reverse out of their futures contracts.
18. How much does Stacey pay Ben for the 1000 barrels of oil?