An Investor Enters a Short Position Worth $10,000 in Futures

question 5

Essay

An investor enters a short position worth $10,000 in futures contracts that require a maintenance margin that is 50% of this amount.The spot price of the underlying asset closes at the following prices for the next five days: $20.50, $20.75, $21.00, $20.75 and $20.00, and the current spot is $21.00.On what days will the investor receive a margin call and why? (Assume no deposits or withdrawals.)

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Definitions:

Industry Level

referring to the collective performance, trends, or characteristics of businesses within a specific sector of the economy.

High Barriers

Substantial obstacles or challenges that prevent or hinder entry into a market or industry.

Buyer Power

Refers to the ability of consumers to influence the pricing and quality of goods and services in a market due to their collective purchasing power.

Supplier Power

Refers to the ability of providers of goods or services to dictate terms and influence prices in the marketplace due to their strong position vis-à-vis buyers.