Futures Prices
In addition to other media, futures prices are reported daily in major newspapers such as The Wall Street Journal, which contains futures price and volume quotes from the previous trading session. Contracts are grouped into like commodities such as: grain and oilseed futures; livestock futures; food and fiber futures; metal futures; petroleum futures; interest
rate futures; currency futures; index futures. In this chapter you will learn how to decipher these listings.

In parentheses, and adjacent to the name of the contract, is the abbreviation of the exchange on which the contract is traded. In our example, the first contract listed — the CME S&P 500 Stock Index contract — is traded at CME. Just to the right of the exchange abbreviation is the valuation factor (also called the multiplier). With the CME S&P 500 Index,
the value of a futures contract is $250 times the present value of the CME S&P 500 futures index (which, as you may know, changes almost constantly.) The prices quoted are listed as dollars times the index number. Each contract maturity or delivery month is listed downward along the left margin. In this case, the March contract is listed first because it is the most nearby contract traded. As we go down the list, we are going out to future months, eventually ending in June 2003.

Now let’s look more closely at the June 2005 contract (the first one in the list). The first quote of 122880 (1228.80) is the Open or opening price for this day’s trading. Moving to the right, the next quote is the High price of the day for the June CME S&P 500 contract, 122940 (1229.40). Next to the high is the Low price of the day for this contract, 1218.00. Continuing to the right, we next see the Settle price of 122040 (1220.40), which is the
closing price for this day’s trading session. Just next to the settle is the net Change in the closing price from the prior day’s trading session. In this case, the net change is – 910.

The next two columns indicate the Life-of-Contract High and Life-of-Contract Low for this specific contract. This indicates a high of 1532.80 and a low of 1077.50 for the June CME S&P 500 contract since its inception in early 2003. The last item is Open Interest, which indicates the number of open positions in that contract. In this case, there are 610,005 open positions, meaning there are that many contracts still long and short in the
market. Remember, when two people trade one contract (one trader buying from a trader selling), that represents one open interest. At the bottom of each set of contract quotes (under the quotes for that particular contract) is another line that provides information detailing:
» The estimated volume of contracts trading that day (58,726).
» The volume traded in the previous session (Wed. 62,486).
» Total open interest for all contracts in this particular commodity (634,549).
» The net change in open interest (+692) from the previous trading day.

Options
You also can find price information on options on futures in The Wall Street Journal (as in our example below) and in other places, such as the CME Web site (www.cme.com). In the table below, you can find out the previous day’s closing prices for all available options on CME S&P
500 futures, as well as strike prices and expiration months.

Here, we’ve highlighted the CME S&P 500 June 1215 call option. On Thursday, May 5, 2005 this call option settled or closed at 27.80. The right to go long or buy an CME S&P 500 futures contract at a price of 1215 between now and April would cost the option buyer a premium of 27.80 per contract. That would be $250 times 27.80 for the premium
($250 X 27.80 = $6,950.00).

The option buyer pays the $6,950.00 premium to the option seller (plus a commission to the brokerage firm). The option seller receives the $6,950.00 premium (but must also pay a commission to the brokerage firm).

If the futures advance to 1230, the option would increase in value because the holder of the option has the right to buy at a lower price (1215) than is currently trading. (Notice that a June 1230 call option is worth less than a June 1215 call option because the right to buy the 1230 call is worth less than the right to buy lower at 1215.) Only if the June CME S&P
500 futures price rises above 1215 will the 1215 call option gather any value. If not, then by expiration, the 1215 call option will waste away and eventually expire worthless. However, the most you could lose would be the premium paid.

Using data from the chart above, let’s take a look at how it would work if we decided to buy the June 1225 put option. On Thursday, May 5, 2005, this put option settled or closed at 26.90. The right to sell a CME S&P 500 futures contract at a price of 1225 between now and June would cost the option buyer a premium of 26.90 per contract. That would be $250 times 26.90 for the premium ($250 x 26.90 = $6,725.00).

As the buyer of the put option, you would pay the $6,725.00 premium to the seller of the option (plus a commission to the brokerage firm). The seller of that option receives the $6,725.00 premium (but must also pay a commission to the brokerage firm.

If the futures decline to 1215, the put option would increase in value because the holder of the option has the right to sell at a higher price — 1225. (Notice that a June 1215 put option is worth less than a June 1225 put option because the right to sell at 1215 isn’t as profitable than selling at 1225.)

Stock Trading References:

Market Club Trading Service
Day Trading Advice
fundamental analysis
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Trading Philosophies
How to price options
Rockwell Trading Review
Swing Trading Defined
Options University Trading Tutorials
Options Trading Tutorials