Suppose that, on 5 November 2020, you opened a short position in a two-year futures contract on the Tesla stock. The share price at the beginning of the contract was $146, and the initial futures price was equal to a theoretical two-year forward price.

 

Assume the following: initial margin of 40% of the futures value, maintenance margin of 32% of the futures value, 3% flat interest rate, continuous compounding, no withdrawals of the excess margin.

 

Next, suppose that, on 1 November 2022, the Tesla stock is priced at $228 per share, and it goes down by 1% daily over 2^nd, 3^rd and 4^th November. Suppose further that, on 1 November 2022, you have received a margin call from your broker (this was your first margin call during this contract) and had to make an instant adjustment to your margin account?

 

a) How the balance on your margin account was changing over this period (i.e., 1-4 November 2022). 

Answer rating: 100% (QA)

a We must compute the daily changes in the futures price the value of the short position and the balance of the margin account in order to determine t... View the full answer