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Zecco.com » General Investing » Options Trading » very quick question on futures
Last post 05-18-2008, 8:38 PM by Angell. 4 replies.
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  •  05-18-2008, 10:59 AM 29307

    very quick question on futures

    Reply Quote

    hey

    an option contract is for 100 shares yep?

    is this the same with futures?

    for example would one futures contract of july crude oil be for 100 barrells of oil?

    thanks in advance

  •  05-18-2008, 12:43 PM 29310 in reply to 29307

    Re: very quick question on futures

    Reply Quote

     

    What do you understand about futures?

    An option on futures is an option on 1 futures contract.

    One CL (Light Crude Oil) futures contract controls 1,000 Barrels.

    For every $0.01 of the price of the option, it costs $10.00

    So, for a July CL option that costs $20.00, you pay $20,000.

    To find contract specs you can google - commodity contract specifications

     

  •  05-18-2008, 1:16 PM 29314 in reply to 29307

    Re: very quick question on futures

    Reply Quote

    Joe87,

    One futures contract on July crude would be for 1,000 US barrels. This information is available from www.nymex.com. Also, futures on different underlying commodities are denominated in different amounts. For example, one futures contract on Natural Gas is for 10,000 million BTU's. Thus, you need to check NYMEX (or the corresponding exchange) for the correct contract specifications.

    Angell

  •  05-18-2008, 3:26 PM 29318 in reply to 29314

    Re: very quick question on futures

    Reply Quote

    thanks for the help guys, i just thought the only difference between an options contract and futures was the obligation with a future, and the right but NOT the obligation on options

    thanks  for the links to resources etc

  •  05-18-2008, 8:38 PM 29328 in reply to 29318

    Re: very quick question on futures

    Reply Quote

    Joe87,

    There are many other differences between options and futures. For example, with options you actually pay the option price today whereas with futures you do not pay anything up front but must post margin. The margin account gets marked to market on a daily basis and you face the possibility of margin calls. Also the pricing characteristics of options and futures are different. Options are affected by the stock price, strike price, volatility, risk free rate, time to maturity, and expected dividends. Futures, on the otherhand, are only affected by the price of the underlying, the time to maturity, and the risk free rate. Moreover, with futures if you fail to close the posistion at maturity you actually have to take possession of the underlying asset. For example, if you went long the July crude futres and failed to offset the posistion with a corresponding short then at maturity you would be requiredto take physical delivery of the 1000 barrels of oil and pay the futures price per barrel for all 1000 barrels. As I am sure you probably do not have a place to store these items. Anyways, these are just some of the many differences between options and futures. I would read up on these financial instruments before you start trading with them. Many people loose lots of money getting involved with these derivative instruments, primarily because they do not know much about how they work.

    Angell
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