It is April 15, and a trader is entered into a short position in two soybean meal futures contracts. The contracts expire on August 15, and call for the delivery of 100 tons of soybean meal each. Further, because this is a futures position, it requires the posting of a $3000 initial margin and a $1500 maintenance margin per contract. For simplicity, however, assume that the account is marked to market on a monthly basis. Assume the following represent the contract delivery prices (in dollars per ton) that prevail on each settlement date:April 15 (initiation) May 15 June 15 July 15 August 15 (delivery) | 173.00 179.75 189.00 182.50 174.25 |
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Based on the May 15 settlement date, which of the following is TRUE()
A. Since the equity value fell below the maintenance level, a variation margin is called.
B. Due to the fact that the equity value falls below the initial margin, a variation margin is called to restore the equity value of the account to it’s initial level.
C. The equity value falls below the initial margin.
