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+514 Part V: Index Options and Futures 
+OPTION PREMIUMS 
+The dollar amount of trading of a futures option contract is normally the same as that 
+of the underlying future. That is, since the S&P 500 future is worth $250 per point, 
+so are the S&P 500 futures options. The same holds true for the New York Stock 
+Exchange Index options. 
+Example: An investor buys an S&P 500 December 1410 call for 4.20 with the index 
+at 1409.50. The cost of the call is $1,050 (4.20 x 250). The call must be paid for in 
+full, as with equity options. 
+An interesting fact about futures options is that the longer-term options have a 
+"double premium" effect. The option itself has time value premium and its underly­
+ing security, the future, also has a premium over the physical commodity. This phe­
+nomenon can produce some rather startling prices when looking at calendar spreads. 
+Example: The ZYX Index is trading at 162.00 sometime during the month of 
+January. Suppose that the March ZYX futures contract is trading at 163.50 and the 
+June futures contract at 167.50. These prices are reasonable in that they represent a 
+premium over the index itself which is 162.00. These premiums are related to the 
+amount of time remaining until the expiration of the futures contract. 
+Now, however, let us look at two options - the March 165 put and the June 165 
+put. The March 165 put might be trading at 3 with its underlying security, the March 
+futures contract, trading at 163.50. The June 165 put option has as its underlying 
+security the June futures contract. Since the June option has more time remaining 
+until expiration, it will have more time value premium than a March option would. 
+However, the underlying June future is trading at 167.50, so the June 165 put option 
+is 2½ points out-of-the-money and therefore might be selling for 2½. This makes a 
+very strange-looking calendar spread with the longer-term option selling at 2½ and 
+the near-term option selling for 3. This is due to the fact, of course, that the two 
+options have different underlying securities. One is in-the-money and the other is 
+out-of-the-money. These two underlyings - the March and June futures - have a 
+price differential of their own. So the option calendar spread is inverted due to this 
+double premium effect. 
+FUTURES OPTION MARGIN 
+Most futures exchanges have gone to the form of option margin called SPAN, which 
+stands for Standard Portfolio Analysis of Risk. This form of margining is very fair and 
+attempts to base the margin requirement of an option position on the probability of