THE BASICS on Futures

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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 of a 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 of tomatoes from her garden
  for 5, to be 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 including account
  type, trading style
• Traded through a registered 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 first trade

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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 1001,100
• Sell futures 950.00
• Buy back futures 959.00
• Total Return -9.00 9.00 X 100 -900

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THE BASICS on Futures 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 Line? is a
registered mark of Value Line, Inc., a New York
corporation that provides 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.