You expect stock market to decrease, but instead of selling stocks short, you make decision to sell the stock index futures contract based on index of New York Stock Exchange common stocks. Index is presently 600 and contract has the value which is $ 250 times amount of index. Margin requirement is $ 2,000 and maintenance margin requirement is $ 1,000.
i) When you sell contract, how much should you put up?
ii) Determine value of contract based on index?
iii) If after 1 week of trading index stands at 601, what has occurred to the position? How much have lost or profited?
iv) If index rose to 607, what would you be needed to do?
v) If index decrease to 594 (1% from starting value), find out percentage profit or loss on position?
vi) If you had bought contract instead of selling it, how much would have invested?
vii) If you had bought contract and index subsequently rose from 600 to 607, find required investment?
viii) Contrast the answers to parts (iv) and (vii). i) At expiration of contract, do you deliver securities you contracted to sell?