38 lines
2.2 KiB
Plaintext
38 lines
2.2 KiB
Plaintext
662 Part V: Index Options and Futures
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Thus, if one is long calls or short puts and, therefore, acquires a long futures
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contract via exercise or assignment, respectively, he should be aware of when the first
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notice day of the futures is; he could receive a delivery notice on his longfutures posi
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tion unexpectedly if he is not paying attention.
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OTHER TERMS
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Striking Price Intervals. Just as futures on differing physical commodities have
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differing terms, so do options on those futures. Striking price intervals are a prime
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example. Some options have striking prices 5 points apart, while others have strikes
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only 1 point apart, reflecting the volatility of the futures contract. Specifically, S&P
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500 options have striking prices 5 points apart, while soybean options striking prices
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are 25 points (25 cents) apart, and gold options are 10 points ($10) apart. Moreover,
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as is often the case ,vith stocks, the striking price differential for a particular com
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modity may change if the price of the commodity itself is vastly different.
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Example: Gold is quoted in dollars per ounce. Depending on the price of the futures
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contract, the striking price interval may be changed. The current rules are:
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Striking Price
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Interval
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$10
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$20
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$50
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Price of Futures
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below $500/oz.
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between $500 and $1,000/oz.
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above $1,000/oz.
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Thus, when gold futures are more expensive, the striking prices are further
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apart. Note that gold has never traded above $1,000/oz., but the option exchanges are
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all set if it does.
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This variability in the striking prices is common for many commodities. In fact,
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some commodities alter the striking price interval depending on how much time is
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remaining until expiration, possibly in addition to the actual prices of the futures
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themselves.
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Realizing that the striking price intervals may change - that is, that new strikes
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will be added when the contract nears maturity - may help to plan some strategies,
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as it will give more choices to the strategist as to which options he can use to hedge
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or adjust his position.
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Automatic Exercise. All futures options are subject to automatic exercise as are
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stock options. In general, a futures option will be exercised automatically, even if it is |