On June 16th 2014 a speculator sold corn using one futures contract for December delivery. The speculator sold at the closing of the trading session on that day, which was $4.42/bu. The initial and maintenance margins for speculators in the corn futures contracts are $1,650/contract and $1,500/contract, respectively. Based on the information above, and recalling that one corn futures contract = 5,000 bushels, answer the following questions.
(a) Fill out the attached table for the speculator’s account with the clearing house. The table already shows the settle (closing) prices of the futures market until June 27th. You need to calculate changes in price and in contract value, and then the values for equity in account, daily gains/losses, margin calls and total amount invested (=initial margin + margin calls). Make sure to submit your completed table with your answer. Hint: use the spreadsheet posted on Blackboard as a reference.
(b) On June 27th the speculator offset his position and then his account with the clearing house was closed. Then the clearing house checked how much money was left in his account at the end of June 27th and returned that amount to him. Compare the total amount invested (=initial margin + margin calls) on June 27th with the account balance on that day. Based on these numbers, how many dollars have the speculator gained or lost? In other words, how much money has the speculator put in his position (between initial margin and margin calls) and how much money has he received back when he closed his position?
(c) Following up on (b), now divide his gain/loss in total dollars by 5,000 bushels (which is the size of the futures contract) and find how much money the speculator gained or lost in dollars/bu.
(d) Now look at the futures price at which the speculator sold in the beginning (June 16th) and then at the futures price at which the speculator bought back at the end (June 27th). Comparing the selling price with the purchasing price, how much money has he gained/lost in $/bu? How does this number compare to what you found in (c). Explain it.