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