CHAPTER 34 
Futures and Futures Options 
In the previous chapters on index trading, a particular type of futures option - the 
index option - was described in some detail. In this chapter, some background infor­
mation on futures themselves is spelled out, and then the broad category of futures 
options is investigated. In recent years, options have been listed on many types of 
futures as well as on some physical entities. These include options on things as diverse 
as gold futures and cattle futures, as well as options on currency and bond futures. 
Much of the information in this chapter is concerned with describing the ways 
that futures options are similar to, or different from, ordinary equity and index 
options. There are certain strategies that can be developed specifically for futures 
options as well. However, it should be noted that once one understands an option 
strategy, it is generally applicable no matter what the underlying instrument is. That 
is, a bull spread in gold options entails the same general risks and rewards as does a 
bull spread in any stock's options - limited downside risk and limited upside profit 
potential. The gold bull spread would make its maximum profit if gold futures were 
above the higher strike of the spread at expiration, just as an equity option bull spread 
would do if the stock were above the higher strike at expiration. Consequently, it 
would be a waste of time and space to go over the same strategies again, substituting 
soybeans or orange juice futures, say, for XYZ stock in all the examples that have been 
given in the previous chapters of this book. Rather, the concentration will be on areas 
where there is truly a new or different strategy that futures options provide. 
Before beginning, it should be pointed out that futures contracts and futures 
options have far less standardization than equity or index options do. Most futures 
trade in different units. Most options have different expiration months, expiration 
times, and striking price intervals. All the different contract specifications are not 
spelled out here. One should contact his broker or the exchange where the contracts 
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