Suppose that you SHORT FIVE May 2016 Gold futures contracts at the opening price of $1,119.40/oz on May 4, 2019. You close out your position on May 8, 2019 at a price of $1,110.50/oz. The initial mar...
- Suppose that you SHORT FIVE May 2016 Gold futures contracts at the opening price of $1,119.40/oz on May 4, 2019. You close out your position on May 8, 2019 at a price of $1,110.50/oz. The initial margin and the maintenance margin requirements are $4,400 per contract and $4,000 per contract, respectively. Contract size is 100 troy ounces per contract. Assume that you deposit the initial margin in cash for the FIVE contracts sold and did not withdraw the excess on any given day. (15 pts)
- Complete the table below given the following daily settlement prices. (9 points)
|
Day |
Settlement Price ($/oz) |
Beginning Balance |
Total Daily Profit / Loss |
Margin Call Deposits |
Ending Balance |
|
May 4, 2019 |
$1,120.20 |
||||
|
May 5, 2019 |
$1,118.80 |
||||
|
May 6, 2019 |
$1,135.00 |
||||
|
May 7, 2019 |
$1,130.00 |
||||
|
May 8, 2019 |
- What is your total profit (loss) on the contracts you sold?
- What is your percentage return based on the amount put up as margin?
- If, on May 8, 2016, you chose to deliver the gold, what would you receive and what would you be delivering? State clearly the transactions and the dollar amount involved.
Homework Answers
a) Total profit on the contracts sold is $4882.27
b) Percentage return:
Total profit is $4882.27
Amount put up=5*4400+6557.69
=28557.69
% return = 4882.27/28557.69*100
=17.10%
c) If on may 8 2016, if gold is to be delivered,I will deliver the gold at opening price of the future i.e $1119.40/oz by purchasing the same in the market at $1110.50 (i.e price on May 8) indicating a profit of $4882.27 along with the balance margin of $22742.85. (amount paid 28557.69 minus loss upto May 7 $5814.84_
Physical delivery of gold will not have any impact on profit assuming that there are no additional costs for delivery or handling.
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