Q4 JUNE 2014
Item Information
Trading objective To buy RM200 million 5-year MGS in March
Interest rate expectation To fall (7%)
Today February
Later March
Today spot price for MGS 114
Today March FMG5 114
Later spot price for MGS 116
(in March)
Later March FMG5 116
(in March)
Size of contract RM100,000 per contract
Minimum price fluctuation RM10
Number of futures contracts = Investment amount
Size of contract
= 200,000,000
100,000
= 2,000 lots of contract
i) Hedging strategy using long hedge
Cash market Futures Market
Feb Plan to buy RM200 million Opening Contract
(Today) of bond in March Buy 2,000 March FMG5
(Current spot price = 114) contract at 114
March Buy RM200 million of bond Closed Out Contract
(Later) at expected higher price of Sell 2,000 March FMG5
116 contract at 116
Futures Profit/Loss = [(Selling Price-Buying Price) x no. of contracts x 100 x minimum
price fluctuation] – brokers commission
= [(116-114) x 2,000 x 100 x 10] – 0
= RM4,000,000
Change in = Spot price in future - Spot price today
value Spot price today
= 116-114 x 200,000,000
114
= RM 3,508,771.93
Net effect = Total Portfolio + Change in Value + Futures Profit
= -RM200,000,000 + (-RM 3,508,771.93 + RM4,000,000)
= -RM 199,508,771.90
ii) Effective price
= ___Net Effect__ x Today spot price
with hedging Portfolio Amount
= RM 199,508,771.90 x 114
RM 200,000,000.00
= 113.72
A portfolio manager who hedged would buy the bond at 113.72 as opposed to
116.00
Q3 JAN 2012
Item Information
Price expectation: Price to fall
No of contract 8 contracts
Contract size RM100,000 per contract
Initial margin RM 8,000 per contract
Maintenance margin RM 5,600 per contract (70%)
Current futures contract price RM 121
i) Contract value traded
Date Market Calculation Contract Value
Price
¿ Current futures price× 100 ×
minimum price fluctuation
1 118 118 x 100 x RM10 RM118,000
2 116 116 x 100 x RM10 RM116,000
3 123 123 x 100 x RM10 RM123,000
4 112 112 x 100 x RM10 RM112,000
5 110 110 x 100 x RM10 RM110,000
Speculative Selling ( Sell high, Buy Low)
ii) Total Initial Margin = Initial margin per contract x no. of contract traded
= RM 8,000 x 8 contracts
= RM 64,000
Total maintenance margin = Maintenance margin per contract x no. of contract traded
= RM 5,600 x 8 contracts
= RM 44,800
iii) Futures = (Selling Price – Buying Price) x no. of contracts x 100 x minimum
Profit/Loss price fluctuation
Day Calculation Profit/Loss in RM
1 = (121 – 118) x 8 x 100 x 10 24,000
2 = (118 – 116) x 8 x 100 x 10 16,000
3 = (116 – 123) x 8 x 100 x 10 -56,000
4 = (123 – 112) x 8 x 100 x 10 88,000
5 = (112 – 110) x 8 x 100 x 10 16,000
Day Settlement Profit / Initial Balance Maintenance Call Variable
Price (RM) Loss Margin Margin Margin Margin Margin
0 121 - 8,000 - 5,600 0 8,000
1 118 24,000 - 32,000 5,600 0 32,000
2 116 16,000 - 24,000 5,600 0 24,000
3 123 -56,000 - -48,000 5,600 0 -56,000
4 112 88,000 - 96,000 5,600 0 88,000
5 110 16,000 - 24,000 5,600 0 16,000
iv) No margin call because balance margin is higher than maintenance margin
v) Profit/Loss = [(Selling Price – Buying Price) x no. of contracts x 100 x
Contracts minimum fluctuation) – Broker’s commission
= [(121 – 110) x 8 x 100 x 10) – 0
= RM 88,000
Profit/Los = (Sum of daily profit or loss) – Broker’s Commission
s
= (24,000+16,000+(-56,000)+88,000+16,000
= RM 88,000
Q3 APRIL 2011
i) Bearish Spread Strategy. The benefit of a bearish spread strategy is that the net
risk of the trade is reduced. Selling the put option with the lower strike price helps
offset the cost of purchasing the put option with the higher strike price. Selling a
stock short theoretically has unlimited risk if the stock moves higher.
ii)
Spread = Selling Price – Buying Price
Sept MGS contracts Dec MGS contracts Spread
(Today) Sell 6 September MGS @ Buy 6 December MGS @ 114.16 0.07bp
114.23
(Later) Buy June MGS@ 113.66 Sell September MGS@ 113.37 -0.29bp
Total Basis Point -0.22bp
iii) Futures = [(Selling Price – Buying Price) x no. of contracts x 100 x
Profit/Loss minimum price fluctuation]-brokers commission
Sept FMG = [(114.23 – 113.66) x 6 x 100 x 10] – 0
= RM3,420
Dec FMG = [(114.16 – 113.37) x 6 x 100 x 10] – 0
= RM4,740
Net Profit/Loss = Profit/ Loss Sept FMG +Profit/ Loss Dec FMG
= RM3,420 + RM4,740
= RM 8,160
