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
Buy back futures
950.00
939.00
Total Return
11.00
Sell futures
Buy back futures
950.00
959.00
Total Return
-9.00
11.00 x $100=$1,100
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.