Page 21 - Study Notes - Hull - Ch 2: Mechanics of Futures Markets

[Dr. Jayanthi Sankaran]

Date Futures Price Daily gain/loss Cumulative Gain/loss Margin Balance Margin Call
$600 $4,000
5-Jun $597 -$600 -$600 $3,400 $0
6-Jun $596 -$180 -$780 $3,220 $0
7-Jun $598 $420 -$360 $3,640 $0

Hi David,

With respect to the above, in page 21 of your Study Notes , Hull, Chapter 2: Mechanics of Futures Markets - the contract specifications being:

Contract size (ounce) = 100
No. of contracts = 2
Ounces = 200
Initial Futures = $600
Initial Margin = $2,000*2 = $4,000
Maintenance Margin = $1,500*2 = $3,000

should not the Daily gain/loss in the colored row be (-$1*200 = -$200) and not -$180. Please help me understand.

Thanks
Jayanthi

 

[ShaktiRathore]

Hi
-180$ will be daily loss/gain on 6th june which shall add to total cumulative loss/gain till date of -600$ to get -600-180=-780$ of total cumulative gain/loss on 6th june.
Thanks

 

[Dr. Jayanthi Sankaran]

Hi Shakti, if you look at the futures price: June 6 = $596 and June 5th = $597, the daily loss on June 6th is ($596 - $597) = -$1. Since the contract size is 100 ounces and the no. of contracts = 2, the daily loss on June 6th = -$1*200 = -$200 and not -$180. This is to be added to the cumulative loss of -$600 as on June 5th to get a cumulative loss of $-600 - $200 = -$800 on June 6, and not -$780. You can look up Hull on this...

Thanks
Jayanthi

 

[Rolme]

Hi Jayanthi

I guess the price changes in the study notes just don't show the decimal places as all daily gains / losses should theoretically be a multiple of 200 in the mentioned example (i.e. price change * ounces(=200)).
For example price from June 8 to June 9 isn't displayed to change but in fact changes by -0.4 = (-80/200).

Thanks,
Roland