506 
OEX: 712 
Part V: Index Options and Futures 
OLX: 142.40 
OLX 2-year LEAPS options: 
Dec 140 call: 30 
Dec 150 call: 26.5 
Dec 160 call: 20.5 
Note that striking prices of 140, 150, and 160 for OLX correspond to 700, 750, and 
800 for OEX itself. Also, if a 2-year OEX Dec 700 call existed, it would sell for 
approximately five times as much as the OLX Dec 140 call, or about 150 points (5 
times 30). This is why the LEAPS options use reduced-value strikes, because very 
few people would have interest in trading an at-the-money option that cost 150 
points ($15,000). 
FUTURES 
We will now take a look at how futures contracts work. This section will be concerned 
only with cash-based index futures; futures for physical delivery are included in a 
later chapter. The ordinary stock investor might think that he will be able to employ 
index option strategies without getting involved in futures. While it may be possible 
to avoid futures, the strategist will realize that they are a necessary part of the entire 
index-trading strategy. Thus, in order to be completely prepared to hedge one's posi­
tions and to operate in an optimum manner, the use of index futures or index futures 
options is a necessary complement to nearly all index strategies. 
A comnwdities futures contract is a standardized contract calling for the deliv­
ery of a specified quantity of a certain comnwdity at some future time. The older, 
more conventional types of commodities contracts were futures on grains, meats, and 
metals. In recent years, futures have expanded extensively and have encompassed 
financial securities - bonds, T-bills, Eurodollar Time Deposits, etc. Most recently, 
futures have been issued that are cash-based; that is, no actual commodity is deliver­
able. Rather, the contract settles for cash. Some of these cash-based futures contracts 
have stock market indices as their underlying 'commodity. "It is this latter type of 
future that will be the subject of the examples in this section, although the basic facts 
regarding futures are applicable to all futures contracts, cash-based or not. 
Several types of traders or investors use futures contracts. One is the specula­
tor: He is able to generate tremendous leverage with futures and may be able to cap­
italize on small swings in the price of the underlying commodity. Another is the true 
hedger: He is a dealer in the actual underlying commodity and uses futures to hedge 
his price risk. This is the more economic function of futures. Examples of hedges for 
physical commodities as well as stocks will be presented in later chapters. However,