Master Class Session Hedging Bullion Price Exposure using Options
|
|
- Dorcas Barber
- 8 years ago
- Views:
Transcription
1 Master Class Session Hedging Bullion Price Exposure using Options 9th India International Gold Convention Hyderabad, India August 24, 2012 Anindya A. Boral Director Metals Products
2 About CME Group World s leading and most diverse derivatives marketplace building on the rich heritage of our four designated contract markets: CME, CBOT, NYMEX and COMEX Our deep and liquid markets include benchmark contracts across all major asset classes: Interest Rates, FX, Equity Indexes and Commodities. Merged in 2007 to form CME Group Interest Rates: Eurodollar futures and options, U.S. Treasury futures and options, Interest Rate Swaps Equity Indexes futures and options: S&P 500, Nasdaq- 100, Dow Jones, S&P CNX Nifty, Nikkei 225 FX: Futures and options across all major G10 and Emerging Markets currency pairs Agricultural Commodities: Wheat, Corn, Soybeans, Rice, Livestock, Dairy Products, Softs, Forestry (lumber/pulp) and Commodity Indexes (S&P GSCI) Acquired by CME Group in 2008 Crude and Refined Products: Global benchmarks for Light Sweet Crude WTI (CL), Natural Gas (NG), Gasoline (RBOB), Heating Oil (HO), Diesel (ULSD) PGMs: Platinum and Palladium futures/options. Ferrous: Iron Ore and Steel futures/options COMEX Division NYMEX/COMEX merged in 1994 Precious Metals: Global benchmark futures/options contracts for Gold (GC/OG) and Silver (SI/SO). Base Metals: Copper (HG) Emissions products: EUAs and CERs 2
3 PART 1 QUICK INTRODUCTION TO OPTIONS 3
4 Options Introduction Basics and Options Vocabulary Our options markets are based on option contracts on futures. The subsequent discussions will be focused on the options on futures (and not the underlying cash asset) Definition An option on a futures contract is the right, but not the obligation, to buy or sell a particular futures contract at a specific price (the Strike) and on or before a certain expiration date (the Expiration or Maturity ). Classification by right: Call options and Put options. Right to buy underlying futures Right to sell underlying futures Classification by Exercise: European options and American options. Exercise only on expiration date Can exercise anytime up to expiration date Purchasing a Call/Put option akin to purchasing insurance and you need to pay a premium for the optionality! Options Payoff Profile: Long $3.00 Copper Call Long $1,000 Gold Put Breakeven Point Premium Cost 4
5 Option Prices Introduction to Volatility An option s premium can be made up of one or both of two components: Based on difference between current futures prices and the option strike. Only for in-the-money options. Option Premium = Time Value + Intrinsic Value Depends on: Time remaining to Expiration Moneyness of the option (i.e., how far is the futures prices from the Strike?) Volatility of the underlying futures prices Option value is higher for >>> longer time to expiry, futures price closer to Strike, and Higher Volatility (Vol) Moneyness terms >>> At-the-money (ATM), In-the-money (ITM), Out-of-the-Money (OTM) σ Futures Price Daily Return Volatility is a function of price movement Measure of uncertainty of asset returns / degree of price fluctuation When prices are rising or falling substantially, volatility is said to be high. When a futures contract shows little price movement, volatility is said to be low. High volatility generally causes options premiums to increase sometimes very dramatically. Lower volatility environments generally cause options premiums to decline. Relatively easy to calculate historic volatility based on the time-series futures price data. Technically speaking, Volatility is the standard deviation of daily returns expressed in annualised terms. 5
6 Option Prices Some Important Concepts Option Value Recap and Option Delta: Option value made up of time value and intrinsic value, if in-the-money. Delta measures the rate of change of an option value with respect to a price change in the underlying futures contract. Delta is a measure of price sensitivity at any given moment. Time Value Erosion: Time value of an option erodes as each day passes, accelerating as expiration nears. This characteristic of options is referred to as time-decay. If time passes and the underlying futures contract does not move far enough by expiry, the option s time value will eventually decay to zero. Option Value = 0.5 Time Decay In-the-money ~1 Increased Vol and Moneyness Total Option Value Time Value Intrinsic Value Out-of-the-money ~0 Strike Futures Price Note: The OTC market also tends to refer to Strikes in terms of Deltas (10D, 25D etc.). Higher trading activity typically around the 25D mark. 6
7 Implied Volatility Ultimately the cost of an option is determined by supply and demand. We can infer market s anticipation for risk or expected price change from observed market prices for options. Regular Options Pricing Method: (relatively straightforward) Futures Price Deducing the Implied Vol : (iterative calculations setup required unfortunately) Futures Price Strike Time to Expiry Interest Rates Options Pricing Model (e.g., Black Formula) Option Price Strike Time to Expiry Interest Rates Options Pricing Model (e.g., Black- Formula) Market Option Price Volatility Implied Volatility (IVol) In other words, option IVol can be seen as a measure of risk associated with an anticipated movement in the underlying futures price (e.g., due to a policy updates from a central bank, or release of key economic data). For many commodities, we observed an inverse leverage effect (in contrast to the equity markets). IVol levels tend to move (sometimes jump) higher during price increases and high-price periods. IVol is used in the market (in particular the OTC market) as a proxy for option value higher IVol consistent with higher option price paid (Vols are activity traded in the market and drive numerous strategies around options trading). Need to account for the Volatility Skew For a given expiration, IVols can edge higher as you move away from atthe-money (ATM) strikes (options theory assumes constant vol across strikes though). The Vol Skew (and trends in the levels and shape of skew) are likely to provide some useful insights into market demand and aggregate market sentiment around price movements. 7
8 Volatility Term Structure and Surfaces Implied Volatility (%) Vol Term Structure for gold: The Vol term structure and skews may be combined to create a Vol Surface. Traders regularly use vol surfaces to assess trading and arbitrage opportunities. Front-end has come off by about 2 vols Source: Bloomberg Vol Skews for gold: Implied Volatility (%) ATM 1-MO Vol Skew on 13-JUL 1-MO Vol Skew on 14-AUG This is just a representative example (not based on gold market data) Source: Reuters Source: Bloomberg 8
9 Tracking Volatility in the Gold Markets From the CME Risk Management Handbook IVol is forward-looking assessment of underlying futures price risk, whereas HVol is backward-looking assessment of where price risk has been. Key Takeaway: Market s assessment of volatility can shift quite a bit. 30-day Historic Vol Gold futures frontmonth prices ($/oz) 1-Mo ATM Implied Vol 3-Mo ATM Implied Vol Source: Bloomberg U.S. Fed QE2 ($600bn) ends; U.S. credit downgrade in Aug; deepening Eurozone worries and signs of a severe economic slowdown. Gold s emergence as a safehaven asset that drives front-month gold futures prices toward the $1,900 mark. Eurozone worries persist; Italian debt concerns emerge Eurozone worries re-emerge; signs of Asian slowdown; disappointing U.S. economic indicators. Risk-off environment takes hold. 9
10 PART 2 COMEX OPTIONS MARKETS AND STRATEGIES 10
11 COMEX Options Markets Volumes and Open Interest Options on metals futures products provide the liquidity, flexibility and market depth needed to achieve market participants trading objectives from the simple to the most sophisticated of trading strategies. COMEX has one of the most liquid precious metals futures and options markets in the world. Option contracts based on our flagship futures contracts that are global benchmarks Daily volumes: Gold Options: 40,000 contracts Gold Futures: 190,000 contracts Silver Options: 7,000 contracts Silver Futures: 55,000 contracts 2012 Open Interest: Gold Options: 1.2 million contracts Gold Futures: 425,000 contracts Silver Options: 190,000 contracts Silver Futures: 115,000 contracts 11
12 COMEX Options Markets Electronic Trading Activity We have seen a remarkable growth in our options markets driven by an increase in electronic trading volumes via our Globex platform. Gold option volumes grew almost 4-fold over the past 5 years to average around 40,000 contracts changing hands daily in first half of Almost 45% of our gold option volumes come via our Globex electronic trading platform. It is noteworthy that electronic trading activity in gold options was virtually non-existent back in early However, the open outcry and off-exchange (ClearPort) venues still important for options - especially when it comes to executing complex option strategies. 12
13 COMEX Options Products Contract Specifications Short-Term Gold Options Our ST Gold Options are physically-settled options with expiries over the next 5 business days. These are European-style options with automatic exercise on expiration. 13
14 COMEX Options Products Some Important Information Gold Option Specs Recap One standard monthly option contract (OG) delivers into one futures contract. One Gold futures contract (GC) constitutes a contract for delivery of 100 troy oz. of Gold to an Exchange-approved depository at a specific date in the future. One options contract would allow the buyer or assign the seller to take or give possession of one corresponding underlying futures contract the specific date of each contract. Cycle Months Gold options settle into underlying futures contracts on a cycle-month schedule. For example, a November options contract exercises into a December futures contract. Since the December futures price is generally different from the November futures price, the option must be valued with the December (Cycle Month) price in mind. Options Expiration Procedure / monthly options Settlement is based on the COMEX close at 1:30 p.m. Eastern Time (ET). Abandonments and assignments must be submitted to the Exchange by 4:30 p.m. ET. Option Buyers exercise and sellers get assigned. Notice of exercise and abandonments are generally given by 8:00 p.m. ET. Margins An option buyer must only put up the amount of the premium, in full, at the time of the trade. However, because option selling involves more risk, an option seller or writer will be required to post performance bond. Once an options position is exercised into a futures position, performance bond is required, just as for any other futures position. 14
15 Tools Available on CME Metals Website Delayed Quotes Choose Venue Choose Underlying futures Choose Options Expiration 15
16 Tools Available on CME Metals Website Open Interest Profile Our Metals Options Open Interest Profile provides powerful insights into open interest patterns for our core option contracts. Open Interest Profile for Dec-12 Gold Option Contract (OG) Why is this valuable? Options incorporate $1800 Calls/Puts, variety of $2200 contract months, and a wide range of Strikes. $1200 $1400 $1500 GCZ2 Dec-12 GC futures 16- Aug Settle: $ $2000 $2300 Market participants can assess market sentiment and liquidity pools in the option markets. Can also help market participants draw inferences around likely support and resistance levels. Can also help identify pin risk potential around certain strikes. 16
17 Some Basic Strategies Downside Protection Options can be used to provide effective downside protection but an options hedging strategy likely to require careful consideration and preparation. A word of caution Options can be effective risk management instruments, but you need to have a good understanding of the entailed risks and operational aspects of options trading (especially if you are selling options). Further, there may be regulatory restrictions that are likely to restrict your ability to access the global options markets it is very important to have a thorough knowledge of these. Call or Put Protection Within options-based hedging, buying Calls (for metal consumers) or Puts (for metal distributors) for price protection is the most basic and relatively straightforward strategy. Can be rather expensive though: Realised Floor Price Strike Realised Price Put Payoff Upside Participation Underlying Position Premium paid Basis, if any (may be positive too) Price Protection Exchange fee / Broker s commission = Floor Price Example A gold dealer looking to sell metal in December may purchase 90% Dec-12 Puts. Present Dec-12 futures price $1619.2/oz (16-Aug settle). Closest Put Strike is $ % Put Current Price Market Price Premium: $10.50 (at 16-Aug settle) / less than 1% of notional Realised Floor at approx $1,443 (assuming no basis or brokerage fees) 17
18 Some Basic Strategies Downside Protection Option spreads can be used to reduce the strategy cost, while enabling reasonable price protection. Call or Put Spreads Purchasing Call- or Put-spreads enables price protection over a specific price range, as against complete downside risk protection (i.e., some tail risk remains). Can be used to take advantage of the vol skew in periods of elevated volatility. Leg-risk needs to be considered when executing. Following the earlier example a long 90%-80% Put spread costs $8.50 based on 16-Aug settle (price protection in approx $1445-$1295 range). Collars / Costless Collars These strategies involve forgoing some upside participation in return for far reduced costs (as strategy requires selling out-of-the-money Calls). Can be used to take advantage of the vol skew in periods of elevated volatility. Leg-risk needs to be considered when executing. Following the earlier example A 90% near-cashless Collar would likely limit upside to 112% (i.e., price protection at $1450 with upside limit at $1820 based on 16-Aug settle). Realised Price Put Payoff Upside Participation Underlying Position Realised Price Put Payoff Limited Upside Participation Underlying Position Price Protection Call Payoff 90% Put Current Price Market Price 90% Put Current Price Market Price 75% Put (Price Protection ends here) 18
19 Accessing Information CME Group Metals Page trading/metals/ Click on OPT to see options quotes 19
20 Contact Information Thank You! Some Useful Links: Fee Schedule Open Interest Profile Margins Options Exercise Months Brokers Directory If you require further details regarding our markets, please do not hesitate to get in touch. We very much look forward to your feedback on our products/services and your questions. Contact Details: Anindya A. Boral (LON) / Miguel Vias (NY) s: Anindya.Boral@cmegroup.com; Miguel.Vias@cmegroup.com Desk Tel: (Anindya); (Miguel) Mobile: (Anindya) 20
21 Important Information DISCLAIMER Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All references to options refer to options on futures unless otherwise stated. The Globe Logo, CME, Chicago Mercantile Exchange, and Globex are trademarks of Chicago Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago. NYMEX, New York Mercantile Exchange, and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. CME Group is a trademark of CME Group Inc. All other trademarks are the property of their respective owners. The information within this presentation has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for any errors or omissions. Although every attempt has been made to ensure the accuracy of the information within this presentation, CME Group assumes no responsibility for any errors or omissions. Additionally, all examples in this presentation are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME, CBOT, NYMEX and CME Group rules. Current rules should be consulted in all cases concerning contract specifications. This presentation is issued by the Chicago Mercantile Exchange Inc. 21
Introduction to Metals Futures. Presented by Pete Mulmat and Dan Gramza September 25th, 2014
Introduction to Metals Futures Presented by Pete Mulmat and Dan Gramza September 25th, 2014 Disclaimer Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged
More informationTrade, Hedge & be ahead of the Precious Metals Markets with Gold & Silver Futures. Why it makes sense?
GOLD & PRECIOUS METALS PRICE OUTLOOK SYMPOSIUM 2015 Trade, Hedge & be ahead of the Precious Metals Markets with Gold & Silver Futures. Why it makes sense? HARRIET HUNNABLE JUNE 2015 CME Group exchanges
More informationmetals products Options Strategy Guide for Metals Products
metals products Options Guide for Metals Products As the world s largest and most diverse derivatives marketplace, CME Group is where the world comes to manage risk. CME Group exchanges CME, CBOT, NYMEX
More informationMonthly Metals Review
METALS June 214 Monthly Metals Review A Global Trading Summary of Metals Markets» Highlights» Futures» Options How the world advances Monthly Metals Review METALS TRADING HIGHLIGHTS June 214 Highlights:
More informationIntroduction of CME Group and Proposed Launch of Physical North American Aluminum Contract. January 13, 2014
Introduction of CME Group and Proposed Launch of Physical North American Aluminum Contract January 13, 2014 Disclaimer Futures trading is not suitable for all investors, and involves the risk of loss.
More informationNoble DraKoln. metals products Gold Futures vs. Gold ETFs: Understanding the Differences and Opportunities.
metals products Gold Futures vs. Gold ETFs: Understanding the Differences and Opportunities. Noble DraKoln Founder of Speculator Academy and author of Winning the Trading Game and Trade Like a Pro cmegroup.com/metals
More informationEnergy Products. The energy Marketplace.
Energy Products The energy Marketplace. In a world of increasing volatility, customers around the globe rely on CME Group as their premier source for managing risk across all major asset classes offering
More informationCME Group Options on Futures
CME Group Options on Futures As the world s leading and most diverse derivatives marketplace, CME Group is where the world comes to manage risk. CME Group exchanges offer the widest range of global benchmark
More informationMonthly Energy Review
ENERGY July 215 Monthly Energy Review A Global Trading Summary of Energy Markets Highlights Futures Options How the world advances Monthly Energy Review ENERGY TRADING HIGHLIGHTS July 215 Average daily
More informationCME Options on Futures
CME Education Series CME Options on Futures The Basics Table of Contents SECTION PAGE 1 VOCABULARY 2 2 PRICING FUNDAMENTALS 4 3 ARITHMETIC 6 4 IMPORTANT CONCEPTS 8 5 BASIC STRATEGIES 9 6 REVIEW QUESTIONS
More informationfor trading options on CME Group futures
25 for trading options on CME Group futures WORLD OF OPTIONS ON SINGLE POWERFUL PLTFORM. With nearly 3 billion contracts worth approximately $1 quadrillion in notional value traded in 2012, CME Group
More informationMonthly Energy Review
ENERGY March 215 Monthly Energy Review A Global Trading Summary of Energy Markets Highlights Futures Options How the world advances Monthly Energy Review ENERGY TRADING HIGHLIGHTS March 215 Average daily
More informationCME Direct 10.3 Enhancements Guide 10/16/15
10.3 Enhancements Guide 10/16/15 Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract s value
More informationIntroduction to Weather Markets. Charles Piszczor
Introduction to Weather Markets Charles Piszczor March 22, 2012 Basic Overview Types of Weather Products Settlement Procedures Margining 2 CME Alternative Investments Weather Hurricane Rainfall, Snowfall
More informationNote on New Products in F&O Segment. 2. Options Contracts with Longer Life/Tenure. 6. Exchange-traded Currency (Foreign Exchange) F&O Contracts
Note on New Products in F&O Segment Contents 1. Mini Contracts in Equity Indices 2. Options Contracts with Longer Life/Tenure 3. Volatility Index and F&O Contracts 4. Options on Futures 5. Bond Index and
More informationHedging Foreign Exchange Rate Risk with CME FX Futures Canadian Dollar vs. U.S. Dollar
Hedging Foreign Exchange Rate Risk with CME FX Futures Canadian Dollar vs. U.S. Dollar CME FX futures provide agricultural producers with the liquid, efficient tools to hedge against exchange rate risk
More informationSwap Rate Curve Strategies with Deliverable Interest Rate Swap Futures
Swap Rate Curve Strategies with Deliverable Interest Rate Swap By James Boudreault, CFA Research & Product Development Table of Contents I. Introduction II. Swap Curve: Level, Slope, and Shape III. Trading
More informationFrequently Asked Questions on Derivatives Trading At NSE
Frequently Asked Questions on Derivatives Trading At NSE NATIONAL STOCK EXCHANGE OF INDIA LIMITED QUESTIONS & ANSWERS 1. What are derivatives? Derivatives, such as futures or options, are financial contracts
More informationCleared OTC Credit Default Swaps
Cleared OTC Credit Default Swaps Changing the CDS Clearing Landscape Q3 2015 Contents Why CME for CDS Clearing? CDS Margin Model & Benefits Cleared OTC CDS Product Scope Client Clearing Reporting & Tools
More informationHedging Borrowing Costs with Eurodollar Futures
Hedging Borrowing Costs with Eurodollar Futures DTN/The Progressive Farmer 2010 Ag Summit December 9, 2010 James Boudreault, CFA Financial Research & Product Development CME Group Agenda 1. Introduction
More informationComparing E-minis and ETFs
STOCK INDEXES Comparing E-minis and ETFs SEPTEMBER 15, 2012 John W. Labuszewski Managing Director Research & Product Development 312-466-7469 jlab@cmegroup.com CME Group E-mini stock index futures and
More informationPFL Symposium: CME Group. Alex Siff Bryanne Matthews
PFL Symposium: CME Group Alex Siff Bryanne Matthews October 15, 2009 Three Legacies, One Future Chicago Mercantile Exchange, Inc. ( CME ) Board of Trade of the City of Chicago ( CBOT ) New York Mercantile
More informationJuly 22, 2010 Page 1 of 5
Page 1 of 5 On November 30, 2009, the Commodity Futures Trading Commission (CFTC) approved Variable Storage Rates (VSR) in CBOT Wheat futures contracts beginning with the July 2010 contract expiration.
More informationCME Margin Services. Security. Neutrality. Transparency. February, 2014
CME Margin Services Security. Neutrality. Transparency. February, 2014 CME Margin Services Overview Tools for calculating initial margin and optimizing portfolio risk across all CME Group Products Simple
More informationCOMMODITIES. CBOT Soybeans vs. DCE Soybean Meal and Soybean Oil Crush Spread
COMMODITIES CBOT vs. DCE and Soybean Oil Spread JULY 2015 CBOT SOYBEANS VS. DCE SOYBEAN MEAL AND SOYBEAN OIL CRUSH SPREAD A key component in the soybean market is what is known as the crush spread. are
More informationFee Summary Guide Proprietary Trading Firms
Fee Summary Guide Proprietary Trading Firms Fees effective as of February 1, 2015 Fee Summary Guide As the world s leading and most diverse derivatives marketplace, CME Group is where the world comes to
More informationCarbon Market Development and Oversight. June 26, 2009 De Ana Dow, Managing Director, CME Group
Carbon Market Development and Oversight June 26, 2009 De Ana Dow, Managing Director, CME Group Contents I. CME Group and the Green Exchange Initiative II. Fundamentals of a Successful Carbon Market III.
More informationCME FX FUTURES. A Sound Alternative to Cash FX.
CME FX FUTURES A Sound Alternative to Cash FX. CME FX FUTURES A SOUND ALTERNATIVE TO CASH FX With $4.0 trillion traded daily, FX markets represent the largest asset class in the world. CME Group offers
More information2014 EXPIRATION CALENDAR PRODUCTS
204 EXPIRATION CALENDAR PRODUCTS As the world s largest and most diverse derivatives marketplace, CME Group is where the world comes to manage risk. In 2008, NYMEX became part of CME Group. Together, we
More informationGrain and Oilseed Futures and Options
commodity products Grain and Oilseed Futures and Options The global benchmark products you already trade. Now with the power of CME Group. Overview Grains and Oilseeds are renewable resources with continuously
More informationwww.optionseducation.org OIC Options on ETFs
www.optionseducation.org Options on ETFs 1 The Options Industry Council For the sake of simplicity, the examples that follow do not take into consideration commissions and other transaction fees, tax considerations,
More informationFX FUTURES A Sound Alternative to Cash FX.
FX FUTURES A Sound Alternative to Cash FX. FX FUTURES - A SOUND ALTERNATIVE TO CASH FX With $3.2 trillion traded daily, FX markets represent the largest asset class in the world, but are largely unregulated.
More informationAn Introduction to Nadex
An Introduction to Nadex AN INTODUCTION TO NADEX MULTIPLY YOUR TRADING OPPORTUNITIES, LIMIT YOUR RISK Discover a product set that: Allows you to trade in very small size (risking no more than a few dollars)
More informationUser Manual. Enterprise Reporting Portal (EREP) User Manual. October 2010. Global Operations Education
User Manual Enterprise Reporting Portal (EREP) User Manual October 2010 Global Operations Education What is Enterprise Reporting Portal (EREP)? Enterprise Reporting Portal (EREP) is browser-based tool
More informationCreating Forward-Starting Swaps with DSFs
INTEREST RATES Creating -Starting Swaps with s JULY 23, 2013 John W. Labuszewski Managing Director Research & Product Development 312-466-7469 jlab@cmegroup.com CME Group introduced its Deliverable Swap
More informationAnswers to Concepts in Review
Answers to Concepts in Review 1. Puts and calls are negotiable options issued in bearer form that allow the holder to sell (put) or buy (call) a stipulated amount of a specific security/financial asset,
More informationIntroduction to Equity Derivatives
Introduction to Equity Derivatives Aaron Brask + 44 (0)20 7773 5487 Internal use only Equity derivatives overview Products Clients Client strategies Barclays Capital 2 Equity derivatives products Equity
More informationCME Datamine TM EOD FAQ 8/26/2013
CME Datamine TM EOD FAQ 8/26/2013 Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract s value
More informationFX Derivatives Terminology. Education Module: 5. Dated July 2002. FX Derivatives Terminology
Education Module: 5 Dated July 2002 Foreign Exchange Options Option Markets and Terminology A American Options American Options are options that are exercisable for early value at any time during the term
More informationWhat are futures contracts?
The Futures Market Introduction and Mechanics (c) 2002-2013 Gary R. Evans. May only be used for non-profit educational purposes only without permission of the author. What are futures contracts? A futures
More informationMechanics of the Futures Market. Andrew Wilkinson
Mechanics of the Futures Market Andrew Wilkinson Risk Disclosure Options and Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading
More informationOptions on Futures: The Exercise and Assignment Process
Total Firm A Firm Y Firm Z Initial Short 50,000 20,000 10,000 20,000 Options on Futures: The Exercise and Assignment Process Short Assignments to Short A 1,000 244 97 659 B 2,000 1,240 736 24 C 500 132
More informationChapter 15 OPTIONS ON MONEY MARKET FUTURES
Page 218 The information in this chapter was last updated in 1993. Since the money market evolves very rapidly, recent developments may have superseded some of the content of this chapter. Chapter 15 OPTIONS
More informationUNDERSTANDING INDEX OPTIONS
UNDERSTANDING INDEX OPTIONS The Options Industry Council (OIC) is an industry cooperative created to educate the investing public and brokers about the benefits and risks of exchange-traded options. Options
More informationOPTIONS EDUCATION GLOBAL
OPTIONS EDUCATION GLOBAL TABLE OF CONTENTS Introduction What are FX Options? Trading 101 ITM, ATM and OTM Options Trading Strategies Glossary Contact Information 3 5 6 8 9 10 16 HIGH RISK WARNING: Before
More informationLake Hill Crude Oil Market Update
Lake Hill Crude Oil Market Update Oil markets are experiencing forced hedging, unwinds and de-risking by both producers and consumers, exacerbating the recent spike in volatility. This distressed trading
More informationSettlement System User Manual
Settlement System User Manual November 2011 Global Operations Education Overview The Settlement System allows member firms to view Settlement Information by Origin and Settlement Account. There are two
More informationChapter 1 - Introduction
Chapter 1 - Introduction Derivative securities Futures contracts Forward contracts Futures and forward markets Comparison of futures and forward contracts Options contracts Options markets Comparison of
More informationOption Theory Basics
Option Basics What is an Option? Option Theory Basics An option is a traded security that is a derivative product. By derivative product we mean that it is a product whose value is based upon, or derived
More informationNadex Multiply Your Trading Opportunities, Limit Your Risk
Nadex Multiply Your Trading Opportunities, Limit Your Risk Discover a product set that: Allows you to trade in very small size (risking no more than a few dollars) Gives you the security of trading on
More informationCME Group 2012 Commodities Trading Challenge. Competition Rules and Procedures
Competition Rules and Procedures CME Group with assistance from CQG and the University of Houston, is sponsoring a commodities trading competition among colleges and universities. Students will compete
More informationInterest Rate Options
Interest Rate Options A discussion of how investors can help control interest rate exposure and make the most of the interest rate market. The Chicago Board Options Exchange (CBOE) is the world s largest
More informationJuly 2010. Chart 1: World Edible Oil Production
Agricultural Products An Overview of the Edible Oil Markets: Crude Palm Oil vs Soybean Oil July 2010 Edible vegetable oils are some of the most crucial cooking ingredients in the world. In addition, edible
More informationIntroduction to Options
Introduction to Options By: Peter Findley and Sreesha Vaman Investment Analysis Group What Is An Option? One contract is the right to buy or sell 100 shares The price of the option depends on the price
More informationHow To Understand The Cme Group
The Evolution of the CME Group Electricity Complex Bradford G. Leach Director, Energy Research and Product Development CME Group Harvard Electricity Policy Group Sixty-Sixth Plenary Session March 9, 2012
More informationFutures Contract Introduction
Futures Contract Introduction 1 The first futures exchange market was the Dojima Rice exchange in Japan in the 1730s, to meet the needs of samurai who being paid in rice and after a series of bad harvests
More informationAsset Management CUSIP Acceptability Requests CME Enhancements Guide 1/24/14
Asset Management CUSIP Acceptability Requests CME Enhancements Guide 1/24/14 Disclaimer Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment,
More informationGeneral Information Series
General Information Series 1 Agricultural Futures for the Beginner Describes various applications of futures contracts for those new to futures markets. Different trading examples for hedgers and speculators
More information3/11/2015. Crude Oil Price Risk Management. Crude Oil Price Risk Management. Crude Oil Price Risk Management. Outline
1 Phoenix Energy Marketing Consultants Inc. 2 Outline What is crude oil price risk management? Why manage crude oil price risk? How do companies manage crude oil price risk? What types of deals do companies
More informationDISCLAIMER. A Member of Financial Group
Tactical ETF Approaches for Today s Investors Jaime Purvis, Executive Vice-President Horizons Exchange Traded Funds April 2012 DISCLAIMER Commissions, management fees and expenses all may be associated
More informationComparing E-minis and ETFs
RESEARCH AND product DEVELOPMENT Comparing E-minis and ETFs John W. Labuszewski, Research and Product Development Brett Vietmeier, Equity Products April 2009 13,000 cmegroup.com 12,000 1 10,000 9,000 8,000
More informationCOMEX ON CME GLOBEX GOLD SILVER COPPER ALUMINUM PLATINUM PALLADIUM ZINC
COMEX ON CME GLOBEX GOLD SILVER COPPER ALUMINUM PLATINUM PALLADIUM ZINC COMEX ON CME GLOBEX A major expansion of the precious and base metals futures markets on the New York Mercantile Exchange, Inc. makes
More informationCME Group Equity Quarterly Roll Analyzer
CME Group Equity Quarterly Roll Analyzer Guide to getting started How the world advances Each quarter during the roll period, CME Group s Equity Quarterly Roll Analyzer is populated with the current futures
More informationBuying Call or Long Call. Unlimited Profit Potential
Options Basis 1 An Investor can use options to achieve a number of different things depending on the strategy the investor employs. Novice option traders will be allowed to buy calls and puts, to anticipate
More informationRisk Explanation for Exchange-Traded Derivatives
Risk Explanation for Exchange-Traded Derivatives The below risk explanation is provided pursuant to Hong Kong regulatory requirements relating to trading in exchange-traded derivatives by those of our
More informationALFA FINANCIAL L.L.C. Licensed and Regulated by the Central Bank of the U.A.E.
ALFA FINANCIAL L.L.C Licensed and Regulated by the Central Bank of the U.A.E. Making a world of trading opportunities accessible to you ALFA Financial L.L.C was set up to give portfolio, how to control
More informationOil prices tumble as speculative bubble burst
Oil prices tumble as speculative bubble burst The financial and sovereign debt crisis continues to set the agenda for almost every investment decision being taken at the moment. During May the crisis in
More informationSwing Trade Warrior Chapter 1. Introduction to swing trading and how to understand and use options How does Swing Trading Work? The idea behind swing trading is to capitalize on short term moves of stocks
More informationJanuary 2001 UNDERSTANDING INDEX OPTIONS
January 2001 UNDERSTANDING INDEX OPTIONS Table of Contents Introduction 3 Benefits of Listed Index Options 5 What is an Index Option? 7 Equity vs. Index Options 9 Pricing Factors Underlying Instrument
More informationCommodity Options as Price Insurance for Cattlemen
Managing for Today s Cattle Market and Beyond Commodity Options as Price Insurance for Cattlemen By John C. McKissick, The University of Georgia Most cattlemen are familiar with insurance, insuring their
More informationCopyright 2009 by National Stock Exchange of India Ltd. (NSE) Exchange Plaza, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 INDIA
Copyright 2009 by National Stock Exchange of India Ltd. (NSE) Exchange Plaza, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 INDIA All content included in this book, such as text, graphics, logos,
More informationDeliverable Swap Futures. Pricing & Analysis on Bloomberg
Deliverable Swap Futures Pricing & Analysis on Bloomberg Contract Description (DES) View contract descriptions including () notional coupon rates, () current contract value and () price histories via DES
More informationComparing E-minis and ETFs. John W. Labuszewski, Research and Product Development Brett Vietmeier, Equity Products April 2009
RESEARCH AND product DEVELOPMENT Comparing E-minis and ETFs John W. Labuszewski, Research and Product Development Brett Vietmeier, Equity Products April 2009 13,000 cmegroup.com 12,000 10,000 9,000 8,000
More informationCommodity Futures and Options
Understanding Commodity Futures and Options for Producers of Livestock and Livestock Products CIS 1100 The Authors Larry D. Makus, C. Wilson Gray and Neil R. Rimbey* Introduction Risk associated with an
More information1 Regional Bank Regional banks specialize in consumer and commercial products within one region of a country, such as a state or within a group of states. A regional bank is smaller than a bank that operates
More informationMARKET REGULATION ADVISORY NOTICE
MARKET REGULATION ADVISORY NOTICE Exchange Subject Rule References Rule 538 Advisory Date Advisory Number CME, CBOT, NYMEX & COMEX Exchange for Related Positions CME Group RA1311-5RR Revised Effective
More informationButterflies, Condors, and Jelly Rolls: Derivatives Explained
Butterflies, Condors, and Jelly Rolls: Derivatives Explained American Translators Association 47 th Annual Conference, New Orleans November 1, 2006 Ralf Lemster 1 Derivatives Explained What are derivatives?
More informationLEAPS LONG-TERM EQUITY ANTICIPATION SECURITIES
LEAPS LONG-TERM EQUITY ANTICIPATION SECURITIES The Options Industry Council (OIC) is a non-profit association created to educate the investing public and brokers about the benefits and risks of exchange-traded
More informationCME Group/BM&FBOVESPA
Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract s value is required to trade, it is possible
More informationCOMMODITIES Precious Metals Industrial (Base) Metals Commodities Grains and Oilseeds Softs affect supply curves Exotics Standardization Tradability
COMMODITIES Commodities: real and tangible assets that are elements of food (agricultural products like wheat and corn), fuel (oil, gas), metals (ex: copper, aluminum, gold, tin, zinc), and natural resources
More informationw w w.c a t l e y l a k e m a n.c o m 0 2 0 7 0 4 3 0 1 0 0
A ADR-Style: for a derivative on an underlying denominated in one currency, where the derivative is denominated in a different currency, payments are exchanged using a floating foreign-exchange rate. The
More informationPowerShares DB Commodity and Currency ETFs Convenient access to commodities and currencies
PowerShares DB Commodity and Currency ETFs Convenient access to commodities and currencies Not FDIC Insured May Lose Value No Bank Guarantee For US Use Only Now you can add agriculture, oil, gas, base
More informationBUSM 411: Derivatives and Fixed Income
BUSM 411: Derivatives and Fixed Income 2. Forwards, Options, and Hedging This lecture covers the basic derivatives contracts: forwards (and futures), and call and put options. These basic contracts are
More informationFutures Trading: The Way to Go?
Futures Trading: The Way to Go? Terence Lee Private Client Service 25/02/11 Disclaimer The information contained in these course materials provided is the option of the Course Trainer and not Phillip Futures.
More informationBEAR: A person who believes that the price of a particular security or the market as a whole will go lower.
Trading Terms ARBITRAGE: The simultaneous purchase and sale of identical or equivalent financial instruments in order to benefit from a discrepancy in their price relationship. More generally, it refers
More informationWHS FX options guide. Getting started with FX options. Predict the trend in currency markets or hedge your positions with FX options.
Getting started with FX options WHS FX options guide Predict the trend in currency markets or hedge your positions with FX options. Refine your trading style and your market outlook. Learn how FX options
More informationAugust 2011. 1 AlphaMetrix Alternative Investment Advisors is a Chicago-based hedge fund service firm
The commodities asset class has become a standard component of diversified financial portfolios. The potential benefits of commodities in a portfolio include low correlations with equities and bonds, expected
More informationMaking Sense of Futures Options
Making Sense of Futures Options Center for Futures Education, Inc. P.O. Box 309 Grove City, PA 16127 (412) 458-5860 FAX: (412) 458-5962 e-mail: info@thectr.com http://www.thectr.com The information in
More informationTrade Energy with Confidence. Crude Oil, Natural Gas, Heating Oil and Gasoline Futures and Options
Trade Energy with Confidence Crude Oil, Natural Gas, Heating Oil and Gasoline Futures and Options Contract Specifications The World s energy Marketplace As the world s largest and most diverse derivatives
More informationCME Group Equity FLEX Options
CME Group Equity FLEX Options American- and European-style flexible options enhancements are available on certain CME Group equity contracts. This document outlines contract specs, trading parameters and
More informationU.S. Treasury Futures and Options
INTEREST RATES U.S. Treasury Futures and Options PLAY AN IMPORTANT ROLE IN THE RISK MANAGEMENT STRATEGIES OF GLOBAL MARKET PARTICIPANTS. Overview U.S. Treasury futures and options provide a wide variety
More informationSteve Meizinger. Understanding the FX Option Greeks
Steve Meizinger Understanding the FX Option Greeks For the sake of simplicity, the examples that follow do not take into consideration commissions and other transaction fees, tax considerations, or margin
More informationGuide to Options Strategies
RECOGNIA S Guide to Options Strategies A breakdown of key options strategies to help you better understand the characteristics and implications of each Recognia s Guide to Options Strategies 1 3 Buying
More informationVolatility as an indicator of Supply and Demand for the Option. the price of a stock expressed as a decimal or percentage.
Option Greeks - Evaluating Option Price Sensitivity to: Price Changes to the Stock Time to Expiration Alterations in Interest Rates Volatility as an indicator of Supply and Demand for the Option Different
More informationTRADING FUTURES ON THE SAXOTRADER PLATFORM
TRADING FUTURES ON THE SAXOTRADER PLATFORM Saxo Capital Markets Tel: +65 6303 7788 Web Site: www.saxomarkets.com.sg 1 TRADING FUTURES ON THE SAXOTRADER PLATFORM OPEN DEMO OPEN LIVE WORLDWIDE INVESTMENT
More informationXetra. The market. The leading trading platform. A simple investment in commodities, volatility or currencies
Xetra. The market. The leading trading platform for ETCs & ETNs A simple investment in commodities, volatility or currencies 2 3 Commodities can be used to reduce the volatility of a portfolio or increase
More informationOPTIONS CALCULATOR QUICK GUIDE. Reshaping Canada s Equities Trading Landscape
OPTIONS CALCULATOR QUICK GUIDE Reshaping Canada s Equities Trading Landscape OCTOBER 2014 Table of Contents Introduction 3 Valuing options 4 Examples 6 Valuing an American style non-dividend paying stock
More informationCOVERED WARRANTS HOW TO TRADE. www.sglistedproducts.co.uk NOVEMBER 2014 LISTED PRODUCTS
NOVEMBER 2014 LISTED PRODUCTS COVERED WARRANTS HOW TO TRADE Covered warrants are products suitable for professional clients and sophisticated retail clients in the UK who have a good understanding of the
More informationIntroduction. Part IV: Option Fundamentals. Derivatives & Risk Management. The Nature of Derivatives. Definitions. Options. Main themes Options
Derivatives & Risk Management Main themes Options option pricing (microstructure & investments) hedging & real options (corporate) This & next weeks lectures Introduction Part IV: Option Fundamentals»
More informationOPTIONS MARKETS AND VALUATIONS (CHAPTERS 16 & 17)
OPTIONS MARKETS AND VALUATIONS (CHAPTERS 16 & 17) WHAT ARE OPTIONS? Derivative securities whose values are derived from the values of the underlying securities. Stock options quotations from WSJ. A call
More information