Chapter 29: Introduction to Index Option Products and Futures 513 
At the present time, there are futures options on all of the various index futures 
contracts. 
EXPIRATION DATES 
Futures options have specifics much the same as stock options do: expiration month 
(agreeing with the expiration months of the underlying futures contract), striking 
price, etc. If a trader buys a futures option, he must pay for it in full, just as with stock 
options. Margin requirements vary for naked futures options, but are generally more 
lenient than stock options. Often, the naked requirement is based on the futures 
margin, which is much less than the 20% of the underlying stock price as is the case 
with listed stock options. 
When the futures option has a cash-based futures contract underlying it, the 
option and the future generally expire on the same day. Thus, if one were to exercise 
a '.ZYX option on expiration day, one would receive the future in his account, which 
would in tum become cash because the future is cash-settled and expiring as well. 
Example: Suppose that a trader owns a '.ZYX December 165 futures worth $500 per 
point - call option and holds it through the last day of trading. On that last day, the 
'.ZYX Index closes at 174.00. He gives instructions to exercise the call, so the follow­
ing sequence occurs: 
1. Buy one '.ZYX future at 165.00 via the call exercise. 
2. Mark the future at 17 4.00, the closing price. This is a variation margin profit of 
$4,500 (174.00-165.00) X $500. 
3. The option is removed from the account because it was exercised, and the future 
is removed as well because it expired. 
Thus, the exercise of the option generates $4,500 in cash into the account and leaves 
behind no futures or option contracts. We do not know if this represents a profit or 
loss for this call holder, since we do not know if his original cost was greater than 
$4,500 or not. 
It should be noted that futures option expiration dates, in general, are fairly 
complex. They are not normally the third Friday of the expiration month, as stock 
options are. Index futures options generally do expire on the third Friday of the expi­
ration month, but many physical commodity options do not. These differences will 
be discussed in the later chapter on futures options.