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