Page 19 - Futures Money Machine-Study Session #5
P. 19
Beyond The Basics
Options on Futures…
• An option on a futures contract gives the holder the right to enter into a specified futures
contract. If the option is exercised, the initial holder of the option would enter into the
long side of the contract and would buy the underlying asset at the futures price.
• A short option on a futures contract lets an investor enter into a futures contract as the
short who would be required to sell the underlying asset on the future date at the specified
price.
• Options on Futures can allow you to trade with superior margin rules (known as SPAN
margin), which allow more efficient use of your trading capital.
• There is, however, a key difference between futures and stock options. A $1 change in a
stock option is equivalent to $1 (per share), which is uniform for all stocks. With S&P
futures, a $1 change in price is worth $250 (per contract), and this is not uniform for all
futures and futures options markets because of the varying “Tick Sizes” in Futures.
