Margin Requirement for Neutral Nick !!!!! Ouch.......

I recently talked to my broker and asked him if he could plug in what the margin requirement would be for some of Neutral Nick's positions.

I had him do this before the last updated trades where added and the results I seen where a little surprising.

First off as we know Nick has a lot of trades instead of 20 per commodity he has hundreds. 

Before he added the trades on the 3rd this is what he calculated for margin required (Maintenance).

Wht  737,736.75

Bns  2,099,957.00

Crn  813,301.25

Ouch; first I asked why so much on beans compared to the other; then I went back and look and see that this was before I got back to 100,000 delta bushels short.  So this might explain this part as on the 3rd Nick adjusted by more then 175,000 bushels.

OK now those numbers above are plenty big and lead to enough interest expense; but to calculate this out we are missing a factor; what hedge account balance is.  In basic summary when one sells an option that money goes into your account balance and when one buys and option that money comes out of the account balance.  To see what dollar amount is actually needed to clear the margin account one needs to take those numbers off.

Nick received the following for his options sold.

Wheat	$       688,173.75
Soybeans	$     1,263,062.50
Corn	$       541,687.50
Total	$     2,492,923.75

So now when we compare the two we can come up with the needed margin.  Now depending on timing Nick would need either the initial or the Maintenance.  If it is theMaintenance this is what the net out of pocket if you will would be at.

	Net Dollars added to account		Additional $$ required to meet Maintenance Margin
Wheat	$     688,173.75		$          49,562.25
Soybeans	$ 1,263,062.50		$         836,894.50
Corn	$     541,687.50		$         271,613.75
Total	$ 2,492,923.75		$     1,158,070.50

Now I don't view these as cheap by any means; but if I go back and look at what his margin would have been simply starting out with 20 contracts of each of these three grains and figure the market difference I calculate out that Nick would have had about 70k in margin for his wheat position, 201k for his soybean and 140k for his corn.  Depending on the adjustment that ends up to Nick after he squared his position he might be in a position that his margin isn't costing him quiet as much as he thought.  Add to that the benefit of net being ahead dollars versus behind on a straight hedge with the only way to get it back via the market falling we find Nick starting to feel a little good again.  After all unchanged markets in just his hedge account leave him with about 3 million or over $10 a bushel on 300,000 bushels while an unchanged market leaves a normal short position out $80,000.

Keep in mind that the above info is based on sources we (I) believe to be reliable; as there are plenty of risks that may not be talked about in the above.