The 10 year treasury note futures price is 98-16/32. The futures contract initial margin requirement is $2,310 per contract and the maintenance margin requirement is $1,950 per contract. The cost to trade 1 futures contract is $5.00. Assume all options are naked.

a. If you short sell 1 futures contract at the current price, what is your margin excess or margin call if the futures price increases to 101-5/32.

b. If you buy 1 futures contract at the current price, what is your actual margin balance if you sell the futures contract at 101-5/32.

2. A 100 par value bond maturing in 13 years and 3 months pays a 5% coupon and is priced at 100. A put option on the bond expiring in 3 months has a strike price of $98 and a premium of $1.50. What is the maximum loss using a long put strategy (buying the put option)? What is the long put strategy's profit or loss when the bond's yield is 5.30%? What is the difference in profit or loss between buying the put option and shorting the bond when the bond is yielding 4%? Is a short put strategy (selling the put option) profitable when the bond is yielding 5.30%?

Answer rating: 100% (QA)

a If you short sell 1 futures contract at the current price of 981632 and the futures price increase... View the full answer