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					   THE BASICS on
   Futures & Options




Kansas City Board of Trade
What are futures and options?
    A contract to make or take delivery of
     a product in the future, at a price set
     in the present
    In formalized futures and options
     trading on exchanges, standardized
     agreements specify price, quantity,
     and month of delivery
    Started in agriculture, but have
     expanded to a wide range of products
Example




   If you agree in April with your Aunt
    Sue that you will buy two pounds of
    tomatoes from her garden for $5, to
    be delivered to you in July, you just
    entered into a futures contract!
Why do futures and options
markets exist?


    Risk Transfer
    Price Discovery
How does trading futures and
options work?
      Similar to stocks, gains and losses
       are the result of price changes
How does trading futures and
options work?
    Futures can be highly leveraged
    Options risks differ depending on
     position
How does trading futures and
options work?
    A number of factors
     to consider including
     account type,
     trading style
    Traded through a
     registered broker
K.C. Isgreat: A simplified,
hypothetical trading example
    Do your
     homework
    Choose a broker
    Enter into an
     agreement
    Make your first
     trade
K.C. Isgreat: A simplified,
hypothetical trading example
                 The first trade….
K.C. Isgreat: A simplified,
hypothetical trading example
      Futures
      Transaction
   
    Sell futures       950.00
    Buy back futures   939.00
   
      Total Return     11.00    11.00 x $100=$1,100

    Sell futures       950.00
    Buy back futures   959.00
   
      Total Return     -9.00    9.00 X $100 = -$900
THE BASICS on
Futures & Options
            Ideas for portions of this presentation came
            from “Understanding Opportunities and
            Risks in Futures Trading,” a publication of
            the National Futures Association. To order
            that publication or other NFA materials,
            please call the NFA’s Information Center
            toll-free at 1-800-621-3570.
            This presentation is in no way intended to
            provide a complete futures education.
            Sources for additional information include
            the NFA, the exchanges where various
            products are traded, and your broker or
            advisor.


            Value Line is a registered mark of Value
            Line, Inc., a New York corporation that
            provides financial services and
            publications. Since 1982, the Kansas City
            Board of Trade has been licensed to use the
            Value Line mark in connection with its
            efforts to establish futures markets tied to
            the Value Line index. The Kansas City
            Board of Trade and Value Line, Inc. are not
            affiliated corporate entities.

				
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