Beruflich Dokumente
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Markets
Chapter 2
FORWARDS AND FUTURES
The CONTRACTS
The MARKETS
PRICING FORWARDS and FUTURES
Speculation
Arbitrage
Hedging 2
CASH OR SPOT MARKET:
THE MARKET FOR IMMEDIATE
DELIVERY AND PAYMENT
Credit risk
Operational risk
Liquidity risk
6
1.Credit Risk:
Does the other party have the means
to pay?
2. Operational Risk:
Will the other party deliver the
commodity?
Will the other party take delivery?
Will the other party pay?
7
3.Liquidity Risk.
Liquidity = the speed with which
investors can buy or sell securities
(commodities) in the market. In case
either party wishes to get out of its
side of the contract, what are the
obstacles?
How to find another counterparty? It
may not be easy to do that. Even if
you find someone who is willing to
take your side of the contract, the
8
CLEARINGHOUSE
9
In order to manage the futures
THE CLEARINGHOUSE PLACE IN
THE MARKET
THE EXCHANGE CORPORATION
THE CLEARINGHOUSE
CLEARING NONCLEARING
MEMBERS MEMEBRS
TRADED
ON AN
ORGANIZED EXCHANGE
Under the
CLEARINGHOUSE RULES
and
REGULATIONS
12
The Clearinghouse
guarantee:
To:
The LONG: will be able to take
delivery and pay the
agreed upon price.
The SHORT will be able to deliver
and receive the agreed
upon price.
13
A. BUYER = LONG
100, June crude oil futures
B. SELLER = SHORT
100, June crude oil futures
A BUY {CLERINGHOUSE} B
SELL
14
A BUY CH SELL B
To LONG (SHORT)
If you maintain your futures position open until
delivery time in June, and wish to take delivery
(deliver) of the 100,000 barrels of oil for
$9,000,000 as per your contract,
you will encounter NO PROBLEM.
STANDARDIZATION
THE COMMODITY
TYPE AND QUALITY
THE QUANTITY
PRICE QUOTES
DELIVERY DATES
DELIVERY PROCEDURES
16
NYMEX. Light, Sweet Crude Oil
Trading Unit
Futures: 1,000 U.S. barrels (42,000 gallons).
Options: One NYMEX Division light, sweet crude oil futures
contract.
Price Quotation
Futures and Options: Dollars and cents per barrel.
Trading Hours
Futures and Options: Open outcry trading is conducted from
10:00 A.M. until 2:30 P.M.
After hours futures trading is conducted via the NYMEX ACCESS
internet-based trading platform beginning at 3:15 P.M. on
Mondays through Thursdays and concluding at 9:30 A.M. the
following day. On Sundays, the session begins at 7:00 P.M. All
times are New York time. Trading Months
Futures: 30 consecutive months plus long-dated futures initially
listed 36, 48, 60, 72, and 84 months prior to delivery.
Additionally, trading can be executed at an average differential to
the previous day's settlement prices for periods of two to 30
consecutive months in a single transaction. These calendar strips
are executed during open outcry trading hours.
Options: 12 consecutive months, plus three long-dated options at
18, 24, and 36 months out on a June/December cycle.
17
Minimum Price Fluctuation
Futures and Options: $0.01 (1) per barrel ($10.00 per contract).
Maximum Daily Price Fluctuation
Futures: Initial limits of $3.00 per barrel are in place in all but the
first two months and rise to $6.00 per barrel if the previous day's
settlement price in any back month is at the $3.00 limit. In the
event of a $7.50 per barrel move in either of the first two contract
months, limits on all months become $7.50 per barrel from the
limit in place in the direction of the move following a one-hour
trading halt.
Options: No price limits.
Last Trading Day
Futures: Trading terminates at the close of business on the third
business day prior to the 25th calendar day of the month
preceding the delivery month. If the 25th calendar day of the
month is a non-business day, trading shall cease on the third
business day prior to the last business day preceding the 25th
calendar day.
Options: Trading ends three business days before the underlying
futures contract.
18
Exercise of Options
By a clearing member to the Exchange clearinghouse not later
than 5:30 P.M., or 45 minutes after the underlying futures
settlement price is posted, whichever is later, on any day up to
and including the option's expiration.
Options Strike Prices
Twenty strike prices in increments of $0.50 (50) per barrel
above and below the at-the-money strike price, and the next ten
strike prices in increments of $2.50 above the highest and
below the lowest existing strike prices for a total of at least 61
strike prices. The at-the-money strike price is nearest to the
previous day's close of the underlying futures contract. Strike
price boundaries are adjusted according to the
futures price movements.
Delivery
F.O.B. seller's facility, Cushing, Oklahoma, at any pipeline or
storage facility with pipeline access to TEPPCO, Cushing
storage, or Equilon Pipeline Co., by in-tank transfer, in-line
transfer, book-out, or inter-facility transfer (pumpover).
19
Delivery Period
All deliveries are rateable over the course of the month and
must be initiated on or after the first calendar day and
completed by the last calendar day of the delivery month.
Alternate Delivery Procedure (ADP)
An alternate delivery procedure is available to buyers and
sellers who have been matched by the Exchange subsequent
to the termination of trading in the spot month contract. If
buyer and seller agree to consummate delivery under terms
different from those prescribed in the contract specifications,
they may proceed on that basis after submitting a
notice of their intention to the Exchange.
Exchange of Futures for, or in Connection with,
Physicals (EFP)
The commercial buyer or seller may exchange a futures
position for a physical position of equal quantity by submitting
a notice to the exchange. EFPs may be used to either initiate
or liquidate a futures position.
20
Deliverable Grades
Specific domestic crudes with 0.42% sulfur by weight or less,
not less than 37 API gravity nor more than 42 API gravity.
The following domestic crude streams are deliverable: West
Texas Intermediate, Low Sweet Mix, New Mexican Sweet,
North Texas Sweet, Oklahoma Sweet, South Texas Sweet.
Specific foreign crudes of not less than 34 API nor more than
42 API. The following foreign streams are deliverable: U.K.
Brent and Forties, and Norwegian Oseberg Blend, for which
the seller shall receive a 30-per-barrel discount below the
final settlement price; Nigerian Bonny Light and Colombian
Cusiana are delivered at 15 premiums; and Nigerian Qua
Iboe is delivered at a 5 premium.
Inspection
Inspection shall be conducted in accordance with pipeline
practices. A buyer or seller may appoint an inspector to
inspect the quality of oil delivered. However, the buyer or
seller who requests the inspection will bear its costs and will
notify the other party of the transaction that the
inspection will occur. 21
Position Accountability Limits
Any one month/all months: 20,000 net futures, but not to
exceed 1,000 in the last three days of trading in the spot
month.
Margin Requirements
Margins are required for open futures or short options
positions. The margin requirement for an options purchaser
will never exceed the premium.
Trading Symbols
Futures: CL
Options: LO
22
CBOT CornTrading
Futures
Unit 5,000 bushels
Price Quotation Cents per pound. For example, 75.80 per pound.
Trading Hours Open outcry trading is conducted from 8:10 A.M. until
1:00 P.M. After-hours futures trading is conducted via the
NYMEX ACCESS
Last Trading Day Trading terminates at the close of business on the third to
last business day of the maturing delivery month.
25
Delivery Copper may be delivered against the high-
grade copper contract only from a warehouse
in the United States licensed or designated by
the Exchange. Delivery must be made upon a
domestic basis; import duties or import taxes, if
any, must be paid by the seller, and shall be
made without any allowance for freight.
Delivery Period The first delivery day is the first business day
of the delivery month; the last delivery day is
the last business day of the delivery month.
26
CBOT U.S. Treasury Bond Futures
27
CME Standard & Poors 500 Stock Index Futures
Trading Unit $500 times the Standard & Poors
500 Stock Index
28
NIKKEI 225 Stock Index Futures
Trading Unit 1,000 times Nikkei stock average
29
Delivery Cash settled
THE CLEARINGHOUSE
sets
MARGINS
process.
30
MARGINS
A margin is cash or marketable
securities deposited by an investor
with his or her broker
The balance in the margin account is
adjusted to reflect daily settlement
Margins minimize the possibility of a
loss through a default on a contract
31
MARGINS
A MARGIN is an amount of money
that must be deposited in a margin
account in order to open any futures
position. It is a good will deposit.
The clearinghouse maintains a
system of margin requirements from
all traders, brokers and futures
commercial merchants. 32
MARGINS. There are two types of margins:
The initial margin: This is the amount that every
trader must deposit with the broker in order to
open an account; short or long.
The maintenance (variable) margin: This is a
minimum level of the traders equity in the margin
account. If the traders equity falls below this level,
the trader will receive a margin call requiring the
trader to deposit more money and bring the
account to its initial level. Otherwise, the account
will be closed.
33
Most of the time, Initial margins are
between 2% to 10% of the position
value. Maintenance (variable) margin is
usually around 70 - 80% of the initial
margin.
Example: a position of 10 CBT treasury bonds
futures ($100,000 face value each) at a price of
$75,000 each. The initial margin deposit of 5% of
$750,000 is: $37,500. If the variable margin is 75%
Margin call if the amount in the margin account
falls to $26,250.
34
Daily margin changes in the margin account:
MARKING TO MARKET
Every day, upon the market close, all profits
and losses for that day must be SETTLED in
cash. The capital in the margin accounts is
used in order to settle the accounts, using the
SETTLEMENT PRICES
35
A SETTLEMENT PRICE IS
the average price of trades during the
last several minutes of the trading
day.
Every day, when the markets close,
SETTLEMENT PRICES
400.00 4,000
5-Jun 397.00 (600) (600) 3,400 0
. . . . . .
. . . . . .
. . . . . .
13-Jun 393.30 (420) (1,340) 2,660 + 1,340 = 4,000
. . . . . .
. . . . .
. . . . . . < 3,000
19-Jun 387.00 (1,140) (2,600) 2,740 + 1,260 = 4,000
. . . . . .
. . . . . .
. . . . . .
26-Jun 392.30 260 (1,540) 5,060 0
38
Example 2: OPEN A LONG POSITION IN 10 JUNE
CRUDE OIL FUTURES AT $98.50/bbl. VALUE: (10)(1,000)
($98.50) = $985,000
INITIAL MARGIN = (.01)($985,000) = $9,850; VAR. MARGIN =
80%
39
OPEN A LONG POSITION IN 10 JUNE CRUDE OIL FUTURES
AT $98.50/bbl. VALUE: (10)(1,000)($98.50) = $985,000
INITIAL MARGIN = (.01)($985,000) = $9,850; VAR. MARGIN = 80%
40
Example 3:
41
$1M face value of 90-day T-bills. P = 1,000,000[1 - (1 Q/100)(90/360)].
42
** Initial Margin is assumed to be 5% of contract fee.
Delivery
43
Delivery
The delivery decision is the
prerogative of the SHORT.
44
Delivery
CBT
45
F ir s t P o s itio n D a y
T h e lo n g d e c la r e s h is o r h e r o p e n p o s it io n s
T r a d e r n o t ifie s t h e C le a r in g C o r p e r a t io n
t w o b u s in e s s d a y s b e fo r e t h e fir s t d a y a llo w e d fo r d e liv e r ie s in t h a t m o n t h
D a y 1 P o s itio n D a y
T h e s h o r t d e c la r e s h is o r h e r p o s it io n b y
n o t ify in g t h e C le a r in g C o r p e r a t io n t h a t h e o r s h e in t e n d s t o
m a k e d e liv e r y
D a y 2 N o tic e o f In te n tio n D a y
T h e C le a r in g C o r p e r a t io n m a t c h e s t h e o ld e s t lo n g t o t h e d e liv e r in g
s h o r t t h e n n o t ifie s b o t h p a r t ie s
T h e s h o r t in v o ic e s t h e lo n g .
D a y 3 D e liv e r y D a y
T h e s h o r t d e liv e r s t h e fin a n c ia l in s t r u m e n t t o t h e lo n g
T h e lo n g m a k e s p a y m e n t t o t h e s h o r t
T it le p a s s e s * T h e lo n g a s s u m e s a ll o w n e r s h ip r ig h t s a n d r e s p o n s ib lit ie s
47
FCM Phone Desk
Pit
Pulpit
(Rostrum)
Messengers
48
1 2
3 4
Vs
Trading futures.
50
To understand the futures markets
observe the following
futures markets statistic:
Put differently:
52
CONCLUSIONS:
DATE PARTY NUM PRICE PARTY NUM PRICE VOL OPEN INT
C remains LONG 5.
F remains SHORT
5. 55
5.23 F DECIDES TO DELIVER 5
CONTRACTS
C WILL ACCEPTS DELIVERY OF 5
CONTRACTS
56
CLEARINGHOUSE PROFIT/LOSS = ZERO*
LONG PRICE SHORT PRICE TOTAL PROFIT
* This calculation accounts for buying and selling only. It does not account
for cash movements resulting from the daily marking-to-market process.
57
1. THE ACTUAL PROFITS AND LOSSES OF ALL MARKET
PARTICIPANTS
ARE ACCUMULATED
IN THEIR RESPECTIVE
MARGIN ACCOUNTS.
2. PAYMENT UPON DELIVERY IS DONE BASED
ON THE LAST SETTLEMENT PRICE
( In our example: $90/barrel the 5.22 settle.)
58
PARTY A:
PARTY B:
Bs loss is = $15,000
59
PARTY C:
DATE ACTION PRICE SETTLE CASH FLOW POSITION
Note that the 5 contracts that were delivered has accumulated the following amount over the period:
PARTY E:
Note that the 5 contracts that were delivered has accumulated the following amount over the period:
TOTAL..$462,500
THE FUTURES
COMMODITY TRADING COMMISSION.
(FCTC) 63
THE MARKET PARTICIPANTS:
TRADERS OF FUTURES MAY BE
CLASSIFIED BY THEIR GOALS:
SPECULATORS: OPEN A RISKY FUTURES POSITION FOR
EXPECTED PROFITS.
64
SPECULATORS:
TAKE RISK FOR EXPECTED PROFIT.
66
CALENDAR SPREAD
Definition: A long position with a
simultaneous short position on the
same underlying asset for two
different delivery months, T1 y T2.
The spread is the price difference
67
Example:
68
How to open the spread?
Rule 1: If the spread is expected to narrow:
SELL THE SPREAD! How?
Buy the low priced contract and sell
the high priced contract
Rule 2: If spread is expected to widen:
BUY THE SPREAD! How?
Buy the high priced contract and sell
the low priced contract.
69
CALENDAR SPREAD 1:
3 MAR F(JULY) F(DECEMBER)
SPREAD
USD0.90/CD USD1.02/CD
USD0.12/CD
The speculator: The spread will narrow. Use Rule 1:
Sell the spread, that is, buy n futures for JUL
sell n futures for DEC
Assume that two weeks later the prices are:
17 MAR F(JULY) F(DECEMBER) SPREAD
USD0.94/CD USD0.99/CD USD0.05/CD
Close the spread: that is, sell n futures for JUL
buy n futures for DEC
GAIN: [USD0.12/CD - USD0.05/CD](n)(100,000CD)
For example: if n = 25 CME contracts the gain is: 70
[USD0.07/CD](25)(CD100,000) = USD175,000.
CALENDAR SPREAD 2:
3 MAR F(JULY) F(DECEMBER)
SPREAD
USD0.90/CD USD1.02/CD
USD0.12/CD
The speculator: The spread will widen. apply rule 2.
Buy the spread , that is, sell n futures for JUL
buy n futures for DEC.
Some time later:
24 MAR F(JULY) F(DECEMBER) SPREAD
USD0.92/CD USD1.08/CD USD0.16/CD
Close the spread, that is, buy n futures for JUL
sell n futures for DEC
The Gain: [-USD0.12/CD + USD0.16/CD](n)(100,000CD)
For example: if n = 25 CME contracts the gain is: 71
[USD0.04/CD](25)(CD100,000) = USD100,000.