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THE BASICS on
Futures & Options
Kansas City Board of Trade
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What are futures and options?
A contract to make or take delivery ofa product in the future,
at a price set
in the present In formalized futures and options
trading on exchanges, standardized
agreements specify price, quantity,and month of delivery
Started in agriculture, but have
expanded to a wide range of products
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Example
If you agree in April with your Aunt
Sue that you will buy two pounds oftomatoes from her garden for
$5, tobe delivered to you in July, you just
entered into a futures contract!
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Why do futures and options
markets exist?
Risk Transfer
Price Discovery
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How does trading futures and
options work? Similar to stocks, gains and losses
are the result of price changes
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How does trading futures and
options work? Futures can be highly leveraged
Options risks differ depending on
position
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How does trading futures and
options work? A number of factors
to consider includingaccount type,trading style
Traded through aregistered broker
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K.C. Isgreat: A simplified,
hypothetical trading example Do your
homework
Choose a broker Enter into an
agreement
Make your firsttrade
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K.C. Isgreat: A simplified,
hypothetical trading example The first trade.
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K.C. Isgreat: A simplified,hypothetical trading example
Futures Transaction
Sell futures 950.00
Buy back futures 939.00
Total Return 11.00 11.00 x $100=$1,100
Sell futures 950.00 Buy back futures 959.00
Total Return -9.00 9.00 X $100 = -$900
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THE BASICS onFutures & Options
Ideas for portions of this presentation came
from Understanding Opportunities and
Risks in Futures Trading, a publication of
the National Futures Association. To order
that publication or other NFA materials,
please call the NFAs Information Center
toll-free at 1-800-621-3570.
This presentation is in no way intended to
provide a complete futures education.
Sources for additional information include
the NFA, the exchanges where various
products are traded, and your broker or
advisor.
Value Lineis a registered mark of Value
Line, Inc., a New York corporation thatprovides financial
services and
publications. Since 1982, the Kansas City
Board of Trade has been licensed to use the
Value Line mark in connection with its
efforts to establish futures markets tied to
the Value Line index. The Kansas City
Board of Trade and Value Line, Inc. are not
affiliated corporate entities.
