I'm interested in learning more about these two forms of financial trading. thanks for some solid info including definitions, possible websites? Thank you.|||Both are standardized contracts that can be traded. They would give you the right to buy and sell a stock or delivery of commodities (grains, fruits, etc.). This is why they call them "derivatives". Both instruments are considered risky and may not be suitable for the novice.
Options: the right to buy (or sell) a stock (or any other financial asset) at any time, before the expiration date. At is inception, it sells (or can be bought) for little, compared to te actual stock price on thecontract. As expiration approaches, its price may rise.
Futures: the right to deliver (or receive delivery) a commodity at a specified date. The price paid is a guaranteed. In this fashion, the farmer knows what he/she will make. So do the manufacturer or retail store. To them, futures is a hedge intrument.
But to many others, futures is a very speculative market. People without any farm (or business at all) create these contracts, as if they actually owned a business. They can't ever deliver or take delivery, because they are just speculators sitting ata a desk. Some sell this contracts to "farmers", giving them a guaranteed price, but hoping the price of grains goes up to flip it (that is, turn aroud and sell it to a true buyer of the commodity, like a supermarket). Others sell a delivery contract the the supermarket, but really are speculators who are lloking for the price of the commodity to fall. They would buy the grain at the recently fallen price and deliver them to the supermarket. (in reallity, they would flip this contract in the trading market).
Hope this helps.|||An option gives you the right to buy or sell something at a agreed price, with a future, if you own it at expiry, you MUST buy or sell at the agreed price. Thus futures are a FAR higher risk than options, but also give far higher profits if done well. Futures are settled on a daily basis, so you cough up or get money on the changing price of the future on a daily basis. Options are only settled at expiry and at the choice of the owner of the option.|||Generally futures is used to refer to commodity trades and options is used to describe options on stocks.
They didn't trade futures on stocks for a number of years, since the '80's but I guess there are a few now. But for the most part the language is used as mentioned.|||The above likes right.
BTW you can by options on Futures as well just to make things a little more complicated.
For web sites: I usually start with Wikopedia but Investopedia can be very help as well.
Tuesday, December 6, 2011
What do they mean by fair value of futures and futures present value? How do they come to those figures?
I see this on CNBC every day! They seem to indicate that this could indicate that the stock market would rise on a positive number and fall on a negative number! Is this an indicator or pre market trading or overseas trading? How are they making the predictions for the day? What are they basing it on?|||Normally, S%26amp;P futures trade at a price in sync with the S%26amp;P index because if they didn't, someone could buy the cheaper and sell the more expensive for a guaranteed profit.
In the morning, S%26amp;P futures are trading in Chicago before the stock market opens in New York. If the futures are trading below the price of the index calculated from the previous day's closing prices, they are said to be trading "below fair market value". This inverse applies, too.
The reason this is an indicator of how the market will open is that a lot of institutions will sell/buy futures to get rid of/take on market exposure before the market opens. When they can do stocks, they will offset their futures position and move the position to stocks.|||Hi
Just to add, is there a way to know which direction the index will close?
|||To calculate fair value you take the cash future add on the days interest (to expiry) less any dividends from the underlying stocks. Any varience from this is due to supply/demand of the future and may or may not indicate where the market is going. You will see the DJ future will go from + to - during pre market hours and vice versa.|||no one knows !
i think the monkey does it !|||please read the stock market books and watch the all global markets|||Fair value is the theoretical assumption of where a futures contract should be priced given such things as the current index level, index dividends, days to expiration and interest rates. The actual futures price will not necessarily trade at the theoretical price, as short-term supply and demand will cause price to fluctuate around fair value. Price discrepancies above or below fair value should cause arbitrageurs to return the market closer to its fair value.
The following formula is used to calculate fair value for stock index futures:
= cash [1+r (x/365)] - Dividends
This example shows how to calculate fair value for S%26amp;P 500庐 futures:
Sept S%26amp;P 500 futures price = 1157.00 pts
S%26amp;P 500 cash index = 1146.00 pts
Interest rate = 5.7%
Dividends to expiration of futures = 3.42 pts
(converted to S%26amp;P points)
Days to expiration of Dec. futures = 78 days
Fair Value of futures = Cash [1+r (x/365)] - Dividends
= 1146 [1+.057 (78/365)] - 3.42
1156.54
Amount of futures overpricing = 1157.00 - 1156.54
.46 pts
In the morning, S%26amp;P futures are trading in Chicago before the stock market opens in New York. If the futures are trading below the price of the index calculated from the previous day's closing prices, they are said to be trading "below fair market value". This inverse applies, too.
The reason this is an indicator of how the market will open is that a lot of institutions will sell/buy futures to get rid of/take on market exposure before the market opens. When they can do stocks, they will offset their futures position and move the position to stocks.|||Hi
Just to add, is there a way to know which direction the index will close?
Report Abuse
|||To calculate fair value you take the cash future add on the days interest (to expiry) less any dividends from the underlying stocks. Any varience from this is due to supply/demand of the future and may or may not indicate where the market is going. You will see the DJ future will go from + to - during pre market hours and vice versa.|||no one knows !
i think the monkey does it !|||please read the stock market books and watch the all global markets|||Fair value is the theoretical assumption of where a futures contract should be priced given such things as the current index level, index dividends, days to expiration and interest rates. The actual futures price will not necessarily trade at the theoretical price, as short-term supply and demand will cause price to fluctuate around fair value. Price discrepancies above or below fair value should cause arbitrageurs to return the market closer to its fair value.
The following formula is used to calculate fair value for stock index futures:
= cash [1+r (x/365)] - Dividends
This example shows how to calculate fair value for S%26amp;P 500庐 futures:
Sept S%26amp;P 500 futures price = 1157.00 pts
S%26amp;P 500 cash index = 1146.00 pts
Interest rate = 5.7%
Dividends to expiration of futures = 3.42 pts
(converted to S%26amp;P points)
Days to expiration of Dec. futures = 78 days
Fair Value of futures = Cash [1+r (x/365)] - Dividends
= 1146 [1+.057 (78/365)] - 3.42
1156.54
Amount of futures overpricing = 1157.00 - 1156.54
.46 pts
Do you need to fill out a FAFSA to get Bright Futures?
My school site says I need to fill out a FAFSA and some loan forms, but I don't think I need to because I already have a Bright Futures scholarship. I'm waiting for them to respond to my email, but I thought I would ask you guys since you may have encountered the same problem.|||If you are only interested in receiving the Bright Futures scholarship, then you do not complete the FAFSA (Free Application For Student Aid - http://www.fafsa.ed.gov).
However, if you would like the financial aid staff at your school to consider you for any other financial aid awards for which you may be eligible, then you will need to complete the FAFSA application. For example, some schools have their own grant/scholarship funds for just their own students. If your school has such funds and if you choose not to complete and submit the FAFSA, then your school will not consider you for any such awards.
Also, you may get a faster reply (and definitely will be able to hold a conversation) if you telephone the financial aid office of your school and ask your question (and any others) of a real person. :-)
Best wishes
However, if you would like the financial aid staff at your school to consider you for any other financial aid awards for which you may be eligible, then you will need to complete the FAFSA application. For example, some schools have their own grant/scholarship funds for just their own students. If your school has such funds and if you choose not to complete and submit the FAFSA, then your school will not consider you for any such awards.
Also, you may get a faster reply (and definitely will be able to hold a conversation) if you telephone the financial aid office of your school and ask your question (and any others) of a real person. :-)
Best wishes
What is a futures market without risk-taking speculators providing hedges to suppliers & consumers of oil ?
Do any of you really understand what is the speculators/traders role in S%26amp;D commodity markets? Why villify them and not the commodity cartels like OPEC?|||Why vilify? I'm not vilifying them. They are putting themself out there in that manner. It is the speculators. I'm also sure in the end they will pay for their actions. Cornering the market is still a crime. The U.S went after Martha Stewart for acting in a manner that is common practice to investors. They nailed her trying to restrict her to the proverbial glass ceiling. These speculators are actually hurting people in their actions. I'm anxious to see who does what for their blatant misuse of the market.
What is the most volatile time of the week for corn futures?
Are there any weekly reports for corn futures on cbot that lead to high volatility?|||There's a weekly crop progress report (releasedMonday afternoons) and a monthly crop report. While I haven't studied the volatility statistics, if you look at a chart of July Corn for the last year, I think you'll see that the days with the largest price moves are usually Mondays and Tuesdays.
How does commodity/futures trading with orange juice work?
I am confused on the trading of orange juice, or frozen orange juice. I know speculators are there to just trade with no intention with taking delivery. However are large orange juice companies/manufacturers purchasing orange juice? I ask because i may work on a paper that revolves around the the commodity market bringing foods such as oj to areas like where i live (durango,co) year round. Where we have no citrus trees at all, but we constantly have shelves stocked with oj. So is the commodity market responsible for making this juice available year round?|||If you have some free time, I recommend watching Wall Street Warriors (Its on Hulu.com). There's one individual in the show that trades on the orange juice floor in NYC.
To answer your question, yes. Representatives of large companies buy a spot on the floor and look to buy up tranches of orange juice at the lowest price. Let's say Hurricane Bobby is approaching the coast of Florida - a company will want to lock in orange juice now while prices are lower and before supply is cut.
I'm not really sure if any of this helps. I'll see if I can find some other resources for you.|||Here are a few helpful resources re OJ futures.
https://www.theice.com/productguide/ProductDetails.shtml?specId=30
CFTC Committment of Traders
http://www.cftc.gov/dea/futures/deanybtlf.htm
To answer your question, yes. Representatives of large companies buy a spot on the floor and look to buy up tranches of orange juice at the lowest price. Let's say Hurricane Bobby is approaching the coast of Florida - a company will want to lock in orange juice now while prices are lower and before supply is cut.
I'm not really sure if any of this helps. I'll see if I can find some other resources for you.|||Here are a few helpful resources re OJ futures.
https://www.theice.com/productguide/ProductDetails.shtml?specId=30
CFTC Committment of Traders
http://www.cftc.gov/dea/futures/deanybtlf.htm
Is it possible to sign up for ITF events and futures?
I'm a pretty good 14 year old player, and I know that I probably won't be on the tour off the bat, or even at all (just being realisitic) and I found ipin, a tennis membership site. I know I'm not ready to be in itfs yet, but is it possible to sign up for qualifying at an itf event? Or futures? If not, how do you do it? Thanks.|||Just go to the website (http://www.itftennis.com/mens/) and click on the tournament that you want to sign up for and sign up. Once you're on the website you can browse around and do it.
Subscribe to:
Posts (Atom)