Sitting on a beach in Florida early in May, a savvy investor recognizes that the sun beating down indicates a banner year for the US corn crop, which in turn portends an excess supply. Basic supply and demand analysis suggested to her that the corn price was very likely to go down. But the Farmer’s Almanac had predicted a wet and rainy summer, which convinced many corn analysts that corn prices would be climbing throughout the summer. To take advantage of this sun-inspired observation, our savvy investor sold short six contracts of August corn futures. The price per bushel was $1.62, and each contract was for 5000 bushels. The initial margin deposit is $3000 per contract with the maintenance margin at $2250.
INV4 3b
Sitting on a beach in Florida early in May, a savvy investor recognizes that the sun beating down indicates a banner year for the US corn crop, which in turn portends an excess supply.
Basic supply and demand analysis suggested to her that the corn price was very likely to go down. But the Farmer’s Almanac had predicted a wet and rainy summer, which convinced many corn analysts that corn prices would be climbing throughout the summer.
To take advantage of this sun-inspired observation, our savvy investor sold short six contracts of August corn futures. The price per bushel was $1.62, and each contract was for 5000 bushels. The initial margin deposit is $3000 per contract with the maintenance margin at $2250.
The prices of the futures on the four days following the short sales were 1.58, 1.60, 1.66, and 1.70. Calculate the current balance on each of the next four days.
Step by step
Solved in 2 steps
