Index

DJ Industrial Average (CB0T)$10 times average

Dec 9475 96M 9415 9510 + 23 11950 7B00 32,696

Est vol 24,000; vol Thu 31,674: open int 33,548. +557.

lix pil: Hi 9598.17; Lo 9423.32; Close 9545.17. +82,27.

SSP 500 Index {CME)-$25Q times Index

Oec 110210 111250 109500 110200 - 70 171460 93900 517,644

Mr02 10995C 111430 109850 110390 - 80 134960 94-100 16.476

Est vol 66.064; vol Thu 85,746: open Inl 535,639, +2,284

Id* prl: Hi 1110.61: Lo 3094.24; Close 1104.61, +4.52.

The next several rows detail prices for contracts expiring on various dates. The December 2001 maturity contract opened during the day at a futures price of $2.065 per bushel. The highest futures price during the day was $2.0675, the lowest was $2.0475, and the settlement price (a representative trading price during the last few minutes of trading) was $2.055. The settlement price decreased by $.01 from the previous trading day. The highest and lowest futures prices over the contract's life to date have been $2.75 and $2.0225, respectively. Finally, open interest, or the number of outstanding contracts, was 211,394. Corresponding information is given for each maturity date.

The trader holding the long position profits from price increases. Suppose that at expiration, corn is selling for $2.255 per bushel. The long position trader who entered the contract at the futures price of $2.055 on October 26 would pay the previously agreed-upon $2.055 for each unit of the index, which at contract maturity would be worth $2.255.

Because each contract calls for delivery of 5,000 bushels, the profit to the long position, ignoring brokerage fees, would equal 5,000 X ($2.255 - $2.055) = $1,000. Conversely, the short position must deliver 5,000 bushels for the previously agreed-upon futures price. The short position's loss equals the long position's profit.

The distinction between the right to purchase and the obligation to purchase the asset is the difference between a call option and a long position in a futures contract. A futures contract obliges the long position to purchase the asset at the futures price; the call option merely conveys the right to purchase the asset at the exercise price. The purchase will be made only if it yields a profit.

Clearly, the holder of a call has a better position than the holder of a long position on a futures contract with a futures price equal to the option's exercise price. This advantage, of course, comes only at a price. Call options must be purchased; futures investments are contracts only. The purchase price of an option is called the premium. It represents the compensation the purchaser of the call must pay for the ability to exercise the option only when it is profitable to do so. Similarly, the difference between a put option and a short futures position is the right, as opposed to the obligation, to sell an asset at an agreed-upon price.

Money market securities are very short-term debt obligations. They are usually highly marketable and have relatively low credit risk. Their low maturities and low credit risk ensure minimal capital gains or losses. These securities trade in large denominations, but they may be purchased indirectly through money market funds. Much of U.S. government borrowing is in the form of Treasury bonds and notes. These are coupon-paying bonds usually issued at or near par value. Treasury bonds are similar in design to coupon-paying corporate bonds.

Municipal bonds are distinguished largely by their tax-exempt status. Interest payments (but not capital gains) on these securities are exempt from income taxes. Mortgage pass-through securities are pools of mortgages sold in one package. Owners of pass-throughs receive all principal and interest payments made by the borrower. The firm that originally issued the mortgage merely services the mortgage, simply "passing through" the payments to the purchasers of the mortgage. The pass-through agency usually guarantees the payment of interest and principal on mortgages pooled into these pass-through securities.

Common stock is an ownership share in a corporation. Each share entitles its owner to one vote on matters of corporate governance and to a prorated share of the dividends paid to shareholders. Stock, or equity, owners are the residual claimants on the income earned by the firm.

Preferred stock usually pays a fixed stream of dividends for the life of the firm: It is a perpetuity. A firm's failure to pay the dividend due on preferred stock, however, does not set off corporate bankruptcy. Instead, unpaid dividends simply cumulate. New varieties of preferred stock include convertible and adjustable-rate issues. Many stock market indexes measure the performance of the overall market. The Dow Jones averages, the oldest and best-known indicators, are price-weighted indexes. Today, many broad-based, market value-weighted indexes are computed daily. These include the Standard & Poor's composite 500 stock index, the NYSE, the Nasdaq index, the Wilshire 5000 Index, and several international indexes, including the Nikkei, FTSE, and Dax. A call option is a right to purchase an asset at a stipulated exercise price on or before an expiration date. A put option is the right to sell an asset at some exercise price. Calls increase in value, while puts decrease in value as the value of the underlying asset increases. A futures contract is an obligation to buy or sell an asset at a stipulated futures price on a maturity date. The long position, which commits to purchasing, gains if the asset value increases, while the short position, which commits to delivering the asset, loses.

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Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

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