37 lines
2.8 KiB
Plaintext
37 lines
2.8 KiB
Plaintext
508 Part V: Index Options and Futures
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move in the futures contract is worth $250. There is no particular reason why a I-point
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move is worth $250, that is merely how the contract is defined. These numbers are
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subject to change. Originally, a I-point move in S&P futures was worth $500, but
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when the S&P advanced so much during the bull market of the 1990's, the point value
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was halved in order to reduce the trading exposure in trader's accounts. One could
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surmise that a further bull market advance might cause the number to be reduced
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again, or possibly a prolonged bear market could result in an increase from $250 back
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to $500, conceivably.
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Example: A futures trader buys I March S&P 500 contract at 401.00 (the smallest
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unit of trading is 0.10 points, a "dime"). The contract rises in price to 403.30. The
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trader has a profit of 2.30 points, or $575 (2.30 points x $250 per point).
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The terms of futures contracts can change as the exchanges on which they are
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traded attempt to adjust the contracts to he more competitive in the current trading
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environment. Consequently, the strategist should check with his broker to determine
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the exact terms of any contract before he begins trading it.
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OPEN OUTCRY
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Futures contracts trade on listed commodity exchanges. However, the method of
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trading is different from that used for stocks and options. Futures trade by "open
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outcry" in rings or pits. Members of the exchange are the only ones allowed to trade
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on the exchange, of course, just as is the case with stocks and options. If the. member
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is trying to execute a buy order, for example, he would announce his bid out loud
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(open outcry). Sellers would then respond by either showing him an offer or by sell
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ing to him at his bid price. This differs from stocks and options which use the spe
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cialist system, in that many people can be buying and selling at once, all over the pit.
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It also differs from the market-maker system used on some stock options exchanges
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because anyone can make the market in the commodity pit, not just a designated few
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traders.
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This form of trading can produce some oddities not normally associated with
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stock or stock option trading. There may be slightly different markets at different
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places in a large, busy trading pit. Hence a buyer on one side of the pit may be try
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ing to pay a price that is being offered on the other side of the pit, but the two do not
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trade with each other because of the size of the trading crowd. The buyer might buy
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on one side of the pit, but the seller on the other side does not sell. Then if the mar
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ket trades lower, only one of the two will have received an execution even though
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they were trying to buy and sell at the same price. Thus, one cannot be certain that
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his futures order is executed unless the market trades through his price. That is, if |