Answer :
the variation margin for your account would be $2,400. This amount would be adjusted in your account balance based on the change in the futures contract price.
To calculate the variation margin, we need to determine the change in the futures contract price from the purchase date to the settlement date.
The formula to calculate the variation margin is:
Variation Margin = (Closing Price - Purchase Price) * Contract Size * Number of Contracts
In this case, the purchase price of each contract is 120 cents per pound, and the closing price is 122 cents per pound. The contract size for CME Live Cattle futures is 40,000 pounds.
Let's calculate the variation margin step-by-step:
1. Calculate the difference in price:
Closing Price - Purchase Price = 122 cents/pound - 120 cents/pound = 2 cents/pound
2. Calculate the variation margin:
Variation Margin = (2 cents/pound) * (40,000 pounds) * (3 contracts)
Now, let's plug in the values and calculate the variation margin:
Variation Margin = (2 cents/pound) * (40,000 pounds) * (3 contracts)
= 240,000 cents
To convert cents to dollars, we divide by 100:
Variation Margin = 240,000 cents ÷ 100
= $2,400
Therefore, the variation margin for your account would be $2,400. This amount would be adjusted in your account balance based on the change in the futures contract price.
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The variation margin for your account balance would be $800.
The variation margin is the amount of money added or subtracted from your account balance to account for changes in the value of the futures contract. To calculate the variation margin, you need to find the difference between the initial price and the closing price of the futures contract, and then multiply that difference by the contract size.
In this case, you purchased 3 CME April 2020 Live Cattle futures contracts at a price of 120 cents per pound. The closing price of the futures contract is 122 cents per pound.
To calculate the variation margin, subtract the initial price from the closing price: 122 - 120 = 2 cents per pound.
Next, multiply the difference by the contract size. The contract size for CME Live Cattle futures is 40,000 pounds.
So, the variation margin would be: 2 cents per pound * 40,000 pounds = 80,000 cents.
To convert cents to dollars, divide by 100: 80,000 cents / 100 = $800.
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