512 Part V: Index Options and Futures 
There are certain differences between the way futures trade and the way stocks 
trade. One difference that is extremely important to investors accustomed to dealing 
in stocks and stock options is that quotation vendors rarely show a bid and offer for 
futures. Thus, if one uses a quote machine to obtain the price of a stock he might see 
that the stock is currently 31 bid, 31.10 asked, with a last sale of 31. An active futures 
contract traded on a trading floor (which is typically the type that one would want to 
trade) virtually never shows a bid and offer, but rather shows last sale only. In addi­
tion, each sale of a stock or stock option is recorded both as to its time of execution 
and the quantity of execution. Such is not the case for futures. Only the price is 
recorded - one cannot tell how many contracts traded at the price, nor can he tell if 
there were repeated sales at that price. Where futures are traded in electronic mar­
kets, of course, the bid and offer are available for all to see, and volume may accu­
rately be recorded as well. 
OPTIONS ON INDEX FUTURES 
As we saw earlier, futures contracts allow a person dealing in a commodity to minimize 
profit fluctuations in his commodity. The mutual fund manager who sold the futures 
largely removed any possibility of further upside profit or downside loss. Options, 
however, allow a little more leeway than futures do. With the option, a person can lock 
in one side of his position, but can leave room for further profits if conditions improve. 
For example, the mutual fund manager might buy put options on the S&P 500 Index 
to hedge his downside risk, but still leave room for upside profits if the stock market 
rises. This is different from the sale of a futures contract, which locks in his profit, but 
does not leave any room for further profits if the market moves favorably. 
Options trade on many types of futures contracts. The security underlying the 
option is the futures contract having the same expiration month, not the entity under­
lying the futures contract itself. Thus, if one exercises a listed futures option, he 
receives a futures contract position, not the physical commodity. 
Example: A trader owns the ZYX futures December 165 call option (165 is the strik­
ing price). Assume the ZYX December future closed at 171.20. Both the calls and the 
futures are worth $500 per point. If the call is exercised, the trader then owns one 
ZYX December (same expiration month as the option) futures contract at a price of 
165. Since the current price is 171.20, there is a maintenance margin credit of $3,100 
in his account (500 x 6.20 points). Note that even though the option is an option on 
a future which is cash-based, the exercise provides the holder of the option with a 
futures contract position, not with cash.