36 lines
2.7 KiB
Plaintext
36 lines
2.7 KiB
Plaintext
Chapter 29: Introduction to Index Option Products and Futures 515
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movement by the underlying futures contract, as well as on the potential change of
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implied volatility of the options in question.
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The older method of margining option positions is known as the "customer mar~
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gin" method. The customer margin method generally results in higher margin
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requirements. The reader is referred to the chapter on futures and futures options
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for an in-depth discussion of SPAN and other option margin requirements.
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OTHER TERMS
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Just as futures on differing physical commodities have differing terms, so do options
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on those futures. Some options have striking prices 5 points apart while others have
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strikes only 1 point apart, reflecting the volatility of the commodity. Specifically, for
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index futures options, the S&P 500 options have striking prices 5 points apart, and
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the NYSE options have striking prices 2 points apart.
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There is no standard method for quoting futures on options as there is with
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stock options. In some cases, striking price symbols are similar to stock option sym
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bols (A=5, B=lO, C=l5, etc.), while in others the letters are used incrementally (A=l,
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B=2, C=3, etc.). Moreover, the method used may differ with each quote vendor. In
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some cases, quote systems use the numeric value of the strike instead of letters. This
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makes quoting options much simpler, and perhaps the entire industry (including
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stock option vendors) will adopt this method someday. Since there is no standard
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method for quoting, one must obtain the symbols individually for futures options, a
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fact that makes quoting them extremely inconvenient.
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There are position limits for some futures options, hut they allow for very large
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positions. Check with your broker for exact limits in the various futures options.
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QUOTES
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Most futures option quotes (bids and offers) are not displayed on quote-vending
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machines, as is also the case with futures. Options traded on the Chicago Mercantile
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Exchange are the exception. This can he somewhat distressing to the trader used to
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dealing in stock options, since options are normally far less liquid than the underly
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ing security. It might be acceptable to trade off of last sales in a liquid futures con
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tract, but not so with the options. As a result, futures options have not attracted many
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stock option traders into their fold. Of course, where electronic markets exist, the
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bids and offers of options would be shown publicly.
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The consequence of the inconsistencies in terms as well as the general unavail
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ability of quotes has been that index futures options are generally traded by profes
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sionals, with the public largely ignoring them. This does not mean, however, that |