2.1 Mechanics of futures Markets Chapter 2 Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.1 Mechanics of Futures Markets Chapter 2
2.2 Futures Contracts Available on a wide range of underlying assets Exchange traded Specifications need to be defined What can be delivered Where it can be delivered When it can be delivered Settled da Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.2 Futures Contracts • Available on a wide range of underlying assets • Exchange traded • Specifications need to be defined: – What can be delivered, – Where it can be delivered, – When it can be delivered • Settled daily
2.3 margins a margin is cash or marketable securities deposited by an investor with his or her broker The balance in the margin account is adjusted to reflect daily settlement Margins minimize the possibility of a loss through a default on a contract Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.3 Margins • A margin is cash or marketable securities deposited by an investor with his or her broker • The balance in the margin account is adjusted to reflect daily settlement • Margins minimize the possibility of a loss through a default on a contract
2.4 Example of a Futures trade An investor takes a long position in 2 December gold futures contracts on June 5 contract size is 100 oz futures price is US$400 margin requirement is uS$2, 000/contract (US$4,000 in total) maintenance margin is US$1, 500/contract (US$3,000 in total) Options Futures, and other Derivatives, 5th edition C 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.4 Example of a Futures Trade • An investor takes a long position in 2 December gold futures contracts on June 5 – contract size is 100 oz. – futures price is US$400 – margin requirement is US$2,000/contract (US$4,000 in total) – maintenance margin is US$1,500/contract (US$3,000 in total)
2.5 A Possible outcome Table 2.1, Page 25 Daily Cumulative Margin Futures Gain Gain Account Margin Price (Loss) Loss) Balance Call Day (USS)(USS)(US$)(USS)(USS 400.00 4.000 5Jun397.00(600)(600)3,400 0 13Jun39330(420)(1,340)2,660+1,340=4000 <3.000 19Jun387.00(1,140)(2.600)2,740+1,260=4,000 26-Jun392.30 260(1,540)5,060 0 Options Futures, and other Derivatives, 5th edition o 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 2.5 A Possible Outcome Table 2.1, Page 25 Daily Cumulative Margin Futures Gain Gain Account Margin Price (Loss) (Loss) Balance Call Day (US$) (US$) (US$) (US$) (US$) 400.00 4,000 5-Jun 397.00 (600) (600) 3,400 0 . . . . . . . . . . . . . . . . . . 13-Jun 393.30 (420) (1,340) 2,660 1,340 . . . . . . . . . . . . . . . . . 19-Jun 387.00 (1,140) (2,600) 2,740 1,260 . . . . . . . . . . . . . . . . . . 26-Jun 392.30 260 (1,540) 5,060 0 + = 4,000 3,000 + = 4,000 <