Issued every 3 months
These are non US and should update when there has been a US bank holiday
CME - Chicago Mercentile Exchange is the largest futures exchange
Largest player in exchange traded US treasury futures market
ELX - another futures exchange
CFTC - Commodity Futures Trading Commission
Futures exist on the same range of products as options although futures on equities are rare.
Exchanges - Eurex, Liffe
Schatz, Bobl, Bund, Buxl, Euribors
Remember that in futures you buy a contract if you are betting on the price of the underlying going up and sell a contract if you are betting on the price of the underlying going down.
A hedger is at risk if a given potential price movement happens.
Hedgers seek to create a profit from this price movement in another market so to create a gain in partial compensation for the loss.
If hedgers lose money in the hedge market they must make money in the market being hedged becuase the price movement they feared has not happened.
A futures transaction is a commitment, not an option
A futures contract is risker than an option
Forward - buying or selling for actual delivery at a future date. want to settle the actual commodity.
Future - similar but usually no intention of taking delivery the position will be closed out with the opposite contract and settled in cash. Used by speculators or hedgers
LTOM - London Traded Options Market
merged with LIFFE
to create London Internation Futures and Options Exchange (still called LIFFE though)
Index Futures -
Bond Futures -
Interest Rate Futures -
Currency Futures -
Initial margin is paid with the first contract.
If the contract moves into loss, extra margin called variation margin is debited on a daily basis but if the contract moves into profit variation margin is credited.
The futures market most closely related to the securities market is the London International Financial Futures and Options Exchange (LIFFE)
This is The third largest in The world after The Chicago Board of trade and Chicago Mercantile Exchange.
LIFFE - provides market for future contracts in
- long dated treasury
short term sterling and euro interest rates
Interest rates down - price of futures up
The size of this contract is a nominal £50,000 and the price is expressed in terms of a notional 9% long dated bond
If the price of the June contract were 93 20/32 it would be shown as 93-20
The minimum step by which the price can move is a tick or a 32nd
Expressed as a proportion of the £50,000 contract value is £15,625
The buyer of a contract is theoretically buying a nominal £50,000 of the bond for future delivery.
If interest rates fall, the market value of the June contract is likely to rise because treasury's will rise in value.
If the price rises to 96-18, the investor could sell a contract at 96-18 to cancel the contract he had bought at 93-20.
This would represent a profit of 94 ticks or £1,468.75
The initial margin on the treasury is £1000 so anyone who had bought a contract would have a profit of 147%
Financial future contracts very rarely result in physical delivery
If you buy an index futures you are hoping that interest rates will fall and therefore the index future will increase.
The most important point to remember is that price movements in the futures market will sometime give advance warnings of the likely price trends in the cash market or in the interest rate market.
Options Traded on LIFFE
The market in traded options was taken over from the London Stock Exchange by LIFFE and it offers options on the shares of a large number of individual companies
It also offers options will different exercise prices. The FT has a table called LIFFE equity options.
The exercise price is shown in the column immediately following the company name and prices are given for call and put options at each price.
The idea is to have at least one out of the money and one in the money option for each company.
And at each price there are options with different lives
They normally run intially for 3,6 or 9 month periods.
Once the life of the 3 month option expires, a new 9 month option will be created.
Different options expire on different months to prevent all the options having the same expiry date.
The price quoted is the middle price for an option on a single share, but deals are in contracts which normally consist of 1,000 shares.