Explanation:
| Days | Gold Price per Ounce (US$) | Profit per Contract (Multiply by 100) | Initial Margin (US$) | Variation (Only If Account Falls Below $8,500) |
|---|---|---|---|---|
| October 30 (beginning of day) | 2,700 | — | 12,000 | — |
| October 30 (end of day) | 2,690 | +1,000 | 13,000 | — |
| October 31 | 2,760 | –7,000 | 6,000 | +6,000 |
| November 1 | 2,800 | –4,000 | 8,000 | +4,000 |
| November 2 | 2,805 | –500 | 11,500 | — |
| November 3 | 2,836 | –3,100 | 8,400 | +3,600 |
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Question 5
A commodity trader for a hedge fund decides to open a short futures position in one gold futures contract. The contract size covers 100 troy ounces, and the minimum price fluctuation is $0.10. Front-month gold futures trade at $2,700 per troy ounce on October 30, just before the trader opens his position. The initial margin is $12,000 and the maintenance margin is set at $8,500. The following table summarizes the price activity of the contract over the next five days:
| End of Day | Price per Ounce |
|---|---|
| October 30 | $2,690 |
| October 31 | $2,760 |
| November 1 | $2,800 |
| November 2 | $2,805 |
| November 3 | $2,836 |
On which days will the trader get margin calls?
A
October 31 and November 2.
B
October 31 and November 3.
C
October 31, November 1, and November 3.
D
The trader will not get a margin call as the price of gold has generally risen over the five days.
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