FUTURE_OPTIONS_FOREX

FUTURE_OPTIONS_FOREX - Futures and Options Foreign Exchange...

Info iconThis preview shows pages 1–13. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Futures and Options Foreign Exchange Market Introduction to a futures contract The Futures Contract Willing buyer & seller agree on price today for future delivery Apartment lease or airline ticket are types of forward contracts Futures contracts are homogeneous with regard to contract size, delivery date & location Introduction to a futures contract The Futures Contract Type of deferred delivery contract Traders publicly set a price for subsequent delivery within a specified time period & place Exchange specifies major terms & conditions of the contract, except for the price The buyer & seller of the contract make equal & offsetting commitments These commitments are legally binding, but can be offset Most futures contracts do not result in delivery & some do not permit delivery Introduction to an options contract The Options Contract The holder of a futures contract has the obligation to either deliver (accept delivery) of the underlying asset or instrument or settle at the cash price. Some futures contracts allow delivery and others do not. Alternatively, the holder of an option has the right but not the obligation to either buy (or Introduction to an options contract The Options Contract A call option gives the buyer the right (but not the obligation) to purchase a futures contract at a specified strike price & during a specific time period A put option gives the buyer the right (but not the obligation) to sell a futures contract at a specified strike price & during a specific time period Important concepts Difference between speculators & hedgers Going long versus short Delivery months Contract specifies delivery or cash settle, but long or short can liquidate any time prior to the delivery month Seller has option to deliver any time during delivery month Why have futures markets? Markets add space, form, & time utility Futures & Options contracts have time utility because you can buy & sell contracts into the future Futures markets are regulated to ensure they remain competitive Economic function of futures and options Provides returns to storage Disseminates information Discover prices Shifts price risks Terminology Brokerage House, Broker, Clearinghouse Hedger, Speculator Long, Short Bid, Offer Liquidation Carrying Charge Volume, Open Interest Puts, Calls Date Trade Futures Month Futures Price Oct. Go Long March 0.93 $/EC Dec. Go Short March 0.99 $/EC Profit (Loss) $.06 125,000 = $7,500 Note: US dollar weakens in this example A futures trade: European Euro (CME) A futures trade: European Euro (CME) Same trade but $US strengthens Profit (Loss): $.08 125,000 = ($10,000) Loss Date Trade Futures Month Futures Price Oct. Go Long March 0.93 $/EC Dec. Go Short March 0.85 $/EC The clearinghouse Operation Of The Clearinghouse (100 oz GOLD Contract) Time Buyer Seller Contract Cl. House Open Open Per. Value Position Longs Shorts 1 A B $36,000 As Seller A B Bs Buyer The clearinghouse...
View Full Document

Page1 / 71

FUTURE_OPTIONS_FOREX - Futures and Options Foreign Exchange...

This preview shows document pages 1 - 13. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online