On 11/12/XX, you decided to open a margin account to purchase S&P 500 stock inde

Question

On 11/12/XX, you decided to open a margin account to purchase S&P 500 stock index futures. The stock index futures traded at 1187.70/share when you opened your position. Each contract has 250 shares of the S&P 500 Index attached. Your broker requires an initial margin of 10% of the total initial value of your futures position. The maintenance margin is $20,000 per contract. S&P 500 stock index futures trades at 1178 on 11/13/XX.

How much must you deposit in a margin account if you wish to purchase two contracts on 11/12/XX?

Find your ending margin account balance on 11/13/XX.   Assume deficits are eliminated to keep the position open?

Explanation / Answer

Opening Futures Price =$1187.70

Value of Contract =$250 x 1187.70 =$296,925

Initial Margin Required =$ 0.10x296,925 =$29,692.50 per contract

Maintenance Margin =$20,000 per contract

Thus, total margin required for two contracts =$ 2 x (29692.50 + 20000) =$ 2 x 49,692.50 =$99,385

Value of index on 11/13/XX =1178

Margin Account Balance Left after losses =$59,385 - (1187.70 - 1178)x250x2 =$54,535

Since, margin account balance is more than the maintenance margin of $40,000, the ending margin account balance will remain same as $54,535 and no margin call will be issued for deficit.

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