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