TABLE 1 Daily gains and losses and cumulative trading profits and losses -- unleaded gasoline, April 3, 1989 to April 28, 1989

1
HW1. Due back on Thursday, December 5. From the
text book Q 1.28, 1.32, 2.4, 2.11, 3.8 and
3.10. In addition Based on the following
definitions, data and the operations described in
slide 2, 3, 4 and 5 below, fill in the blanks in
tables 1 and 2.
2

• All purchases and sales are assumed, for
  simplicity, to take place at the settlement price
  on the day of the trade. The required initial
  and maintenance margins per contract are as
  follows
• Table 1 shows the daily settlement prices for
  the May and June futures contracts, and computes
  the daily gains and losses on the customer's
  futures and positions. The gains and losses are
  both realized and unrealized. Realized gains and
  losses are those resulting from actual purchases
  and sales. Unrealized gains and losses are
  incurred because the account is revalued every
  day, or marked to market losses each day.
  (Readers should be able to calculate these losses
  and gains. Hint each futures contract requires
  the delivery of 42,000 gallons of gasoline.)
• Table 2 shows the customers daily margin
  account. It assumes that the account is opened
  on April 3 with a deposit of 5,000, in
  anticipation of making future trades, and it
  provides the daily transactions made in the
  margin account, from April 3 through April 24,
  because of the following transactions

3

• April 3
• Customer purchases 2 May contracts
  resulting in an initial margin call for 1000,
  which is the difference between the customers
  5000 deposit on the previous day and the initial
  margin requirement of 6000 (3000 x 2 6000).
• April 4
• Customer responds to the margin call and
  deposits 1000. His account experiences an
  unrealized gain of 1352.40 during the day,
  bringing his equity to 7352.40. Since the
  equity is above the initial margin requirement,
  the customer is entitled to withdraw cash if he
  wishes, but he does not.
• April 5
• A substantial drop in gasoline prices result in
  an unrealized loss of 2545.20. The equity
  falls to 4807.20. Since total equity is still
  above the 4200 (2100 x 2) maintenance margin
  level, no margin call is issued.
• April 6
• Gasoline prices continue to decline, resulting
  in another loss of 1579.20, further reducing
  equity to 3228.00. Since equity is now less
  than the required maintenance margin of 4200, a
  variation margin call is issued for 2772
  (6000-3228 2772), bringing the equity in the
  account back to the initial 6000 required margin
  level.
• April 7
• Customer answers the margin call by depositing
  2772. Gasoline prices make a slight recovery.
  Equity rises to 6336.

4

• April 10
• The price of gasoline continues to rise. The
  customers equity increases to 8301.60. He
  requests that the broker pay him the excess in
  his margin account, which is 2301.60 (the
  difference between the initial required margin of
  6000 and the current equity of 8301.60).
• April 11
• Gasoline prices increase. The customer has an
  unrealized gain of 1436.40, bringing the equity
  in the account to 7436.40.
• April 12
• The customer liquidates his position by selling
  2 May contracts at 70.11 cents per gallon,
  realizing a gain for that day of 932.40. His
  equity rises to 8368.80. The columns on the
  right side of Table 2 show this cumulative
  performance up to this date he has a net profit
  of 1898.40.
• April 13
• The customer withdraws 3368.80 from his
  account, leaving only the 5000 he originally
  used to open his account.
• April 18
• Customer sells 4 June contracts, requiring an
  initial margin of 8000 (2000 x 4). Hence, a
  margin call of 3000 is issued (8000 - 5000
  3000).
• April 19
• Customer meets his margin call by depositing
  3000. An increase in gasoline prices results in
  an unrealized loss of 1512.00. The account
  equity is still above the required 5600 (1400 x
  4) maintenance level, so no margin call is
  issued.

5

• April 20
• Gasoline prices continue to surge, causing a
  further loss of 1898.40. Equity falls to
  4589.60, resulting in the broker issuing a
  margin call for 3410.40 to restore the account
  equity to the initial required margin level of
  8000 (8000 - 4589.60 3410.40).
• April 21
• The customer cannot meet the margin call and
  decides to offset his position by buying 4 June
  contracts at 71.18 cents per gallon, for a gain
  of 302.40. His remaining equity is 4892, which
  he requests be paid to him. For the entire
  month, the customers trading activity has
  resulted in a net loss of 1209.60.

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Table 1Daily gains and losses and cumulative
trading profits and losses- unleaded gasoline,
April 3 to April 28
7
Table 2 Margin account and account equity --
unleaded gasoline, April 3 to April 24
Marked to Market cash flows from Table