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37

They are not selling stocks. They are selling OJ futures contracts. Selling a futures contract at 142 gives the buyer the right to buy a fixed number of pounds of orange juice concentrate ("OJ") on a future date at 142 cents per pound. The seller has an obligation to supply that fixed number of pounds of OJ to the buyer on the future date for 142 cents per ...


23

Hedging - You have an investment and are worried that the price might drop in the near future. You don't want to sell as this will realise a capital gain for which you may have to pay capital gains tax. So instead you make an investment in another instrument (sometimes called insurance) to offset falls in your investment. An example may be that you own ...


10

In equilibrium, there is no money to be made on the large spreads that is not related to the risk of trading. When multiple traders begin to believe there is money to be made, competition between them can quickly lower the spread to a level where the profits are only compensating for the risk of trading. Let's see how this works with your example. Trades ...


10

There are many ways of investing either directly or indirectly in oil: There are commodities brokers that will sell you oil by the barrel and store it for you but the minimum lot size is likely to be large and storage costs may destroy any gains that you make. In the short run you can trade in oil CFDs (contracts for difference) but these are more ...


10

Here's a good link that can answer your question: How to take delivery of a futures contract The relevant part states: Prior to delivery day, they inform customers who have open long positions that they must either close out the position or prepare to take delivery and pay the full value of the underlying contract. By the same token traders with short ...


10

Some futures markets are priced using a fractional pricing rather than decimal pricing. The example you've mentioned, Soybeans, is priced in cents per bushel, and the "tick size" (the minimum amount the price can move) is 2/8ths of a cent. So, 990-4 means 990 and 4/8ths of a cent. Also, it's not just some commodities priced this way - some interest rate ...


9

When you buy a futures contract you are entering into an agreement to buy gold, in the future (usually a 3 month settlement date). this is not an OPTION, but a contract, so each party is taking risk, the seller that the price will rise, the buyer that the price will fall. Unlike an option which you can simply choose not to exercise if the price goes down, ...


9

You're missing the cost-of-carry aspect: The cost of carry or carrying charge is the cost of storing a physical commodity, such as grain or metals, over a period of time. The carrying charge includes insurance, storage and interest on the invested funds as well as other incidental costs. In interest rate futures markets, it refers to the differential ...


9

One explanation from https://www.quora.com/In-futures-contracts-each-month-is-represented-by-a-letter-code-This-is-done-alphabetically-but-why-does-it-start-in-F-for-January-and-why-are-some-letters-skipped: exclude letters (A, B, C, D, E, I, L, O, P, R, S, T, W, Y) that could potentially be confused with numbers (B/8, I/1, O/0, S/5, T/7), assigned ...


8

If an exchange facilitates the trading of futures contracts and nobody intends to take delivery of the product, nor do they own it so they can deliver it, then how are the contracts issued? Say I want to buy a future contract that allows me to buy coffee at a given price in December 2013. Technically, this contract allows me to buy 37,500 pounds of coffee ...


8

Buying (or selling) a futures contract means that you are entering into a contractual agreement to buy (or sell) the contracted commodity or financial instrument in the contracted amount (the contract size) at the price you have bought (or sold) the contract on the contract expire date (maturity date). It is important to understand that futures contracts ...


7

I'm not entirely sure about some of the details in your question, since I think you meant to use $10,000 as the value of the futures contract and $3 as the value of the underlying stock. Those numbers would make more sense. That being said, I can give you a simple example of how to calculate the profit and loss from a leveraged futures contract. For the ...


7

The difference is in the interrelation between the varied investments you make. Hedging is about specifically offsetting a possible loss in an investment by making another related investment that will increase in value for the same reasons that the original investment would lose value. Gold, for instance, is often regarded as the ultimate hedge. Its value ...


7

Not all futures contracts are deliverable. Some futures are specified as cash settlement only. In the case of deliverable contracts, part of the specification of a futures contract will be the delivery locations. As per my answer to your previous question, please see the CME Rulebook for details of delivery points for the deliverable futures contracts ...


7

You didn't win in case B. Borrowing shares and then selling them is known as "selling short". You received $2000 when you sold short 100 shares at $20. You spent $1000 to buy them back at $10, so you come out $1000 ahead on that deal. But at the same time, the 100 shares you already owned have declined in value from $20 to $10, so you are down $1000 on ...


6

First, the usual caveat applies: consult a tax professional with experience in these matters. That being said, the term you're looking for is a Section 1256 contract. The 60/40 rule applies to any contract that falls under this designation, which includes Regulated futures contracts Foreign currency contracts Nonequity options Dealer equity options Dealer ...


6

In order for a commodity to be offered as a future, the exact specifications must be specified by the exchange. This includes not only the particular grade, strain, etc (depending on what we are talking about) but also the exact delivery location (otherwise transportation costs is an issue as you noticed). Once there is a standardized contract, the ...


6

Futures tickers use the month symbols. So a two year treasury future in CME might be "TUU5" where "TU" is a prefix symbol for any two year treasury future and U represents the delivery month, in this case the 3rd quarter month (September) and "5" is for 2015. I hope the benefit of such a succinct string for the contract is clear. In fact, once you know the ...


6

The answer to the question, can I exercise the option right away? depends on the exercise style of the particular option contract you are talking about. If it's an American-style exercise, you can exercise at any moment until the expiration date. If it's an European-style exercise, you can only exercise at the expiration date. According to the CME Group ...


6

Sell 200 at 142. What does that mean? I haven't seen the movie, so I won't try to put anything in story context. "Sell 200 at 142" means to sell 200 units (usually shares, but in this case it would likely be gallons or barrels of orange juice or pounds or tons of frozen juice). In general, this could mean that you have 200 units and want to sell what ...


6

Firstly, steel futures trade on the London Metal Exchange, maybe on other exchanges as well. Perhaps your 32 number was limited to one exchange? I've not researched all the exchanges, but I'd wager there are far more than 32 commodities for which futures contracts can be entered into. How is it determined which commodities get futures and which don't? In ...


5

You won't be able to get direct exposure to the FTSE 100 futures on a US Exchange, not even through an ETF. However there are ETF's where you can get a similar correlation. But if you are just using it for charting purposes you can easily chart the FTSE 100 futures even if they are not traded on a US exchange. The symbol is Z on the LIFFE exchange Here is ...


5

No, futures do not carry a premium. The premium on an option contract exists because the rights and obligations of the parties involved are not equivalent. On an option, one party has an obligation while the other party has a right to buy or sell at a price (with no obligation to do so). This difference in obligation is why the side that sells the contract ...


5

No, it means that is only the notional value of that underlying asset of that contract, generally. The contract specification itself is listed on the exchange's websites, and there are really no assumptions you can make about a particular contract. Where S&P futures have one set of specifications, such as what it actually represents, how many each ...


5

Short answer The second article you linked to (on delivery price) states it best: In forward contracts, the forward price and the delivery price are identical when the contract begins, but as time passes, the forward price will fluctuate and the delivery price will remain constant. In short, the forward price only equals the delivery price the moment ...


5

The aluminum generally trades in contango, meaning that the longer the maturity of the future contract (i.e. the farther in the future the delivery date) the more expensive the contract. A simple explanation is that to deliver aluminum to you in 5 years, I need to buy the aluminum now at whatever the current price is and store it for 5 years, which has a ...


5

There's a market for single stock futures. The market (however small) is OneChicago, "an Equity Finance Exchange offering security futures products." I don't know how easy access is for retail investors.


5

Unless you have the storage and transportation facilities for it, or can come up with the money needed to rent or build those, no -- or not in any significant quantity. Buying oil futures is essentially an on-paper version of the same bet. Futures prices are already taking into account both expectations about price changes and the fact that there's cash ...


5

All futures contracts include a specification of the grade and quality of the commodity/instrument being contracted. For example, for CME futures these specifications are laid out the the CME Rulebook. In the case of WTI Crude Oil futures, the contract specifies the acceptable sulphur content, gravity, viscosity, "Reid vapour pressure", acceptable levels ...


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