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Futures and Options Markets

An Introduction

Colin A. Carter

As the world economy has shifted toward globalization, the importance of futures and options markets has grown dramatically; in turn, these markets have evolved to better serve the increasingly global economy. However, even with the trading volume expanding every year, futures and options contracts and markets remain poorly understood. Carter’s text introduces readers to this dynamic, exciting subject in an accessible and lively way. Using a perspective grounded in economics rather than complex mathematics, he presents an integrated explanation of the market institutions, theory, and empirical evidence. The text begins with the fundamentals of commodity futures and, unlike other texts, continues on to extensively discuss financial futures and options markets, including currencies and equity indexes. Geared to the novice reader, mathematics and formulas are kept to a minimum, while numerous real-world examples explain how practitioners use futures and options markets. Whether interested in business, economics, or agricultural and applied economics, readers will appreciate futures and options markets as a thriving laboratory for discovering economic theory in action.

$42.95 list, 323  pages

10-digit ISBN: 1-57766-553-8

13-digit ISBN: 978-1-57766-553-3

© 2003

Table of Contents

1. The Market

Market Participants: Hedgers, Speculators, and Arbitrageurs / What Exactly Are Futures and Options Markets? / Origins of Futures and Options Trading / Ongoing Evolution of Futures and Options Trading / Regulation / The Exchange / Economic Functions of Futures and Options Trading

2. Futures and Options Market Mechanics

The Futures Contract / The Options Contract / The Clearinghouse / Margin Deposits / Volume and Open Interest / Options Versus Futures / Why Speculate in Futures and Options Contracts?

3. Commodities

Futures Contract Price Patterns Over Time / Prices Between Time Periods for a Storable Commodity / Temporal Prices Within a Single Production Period / Theories of Intertemporal Prices: Storable Commodities / Supply of Storage / Implications of the Theory / Intertemporal Prices of Nonstorable Commodities / The Basis / Basis and International Trade / Price Relationships Across Product Forms

4. Financials

Currencies / Globalization / How Are Exchange Rates Determined? / Currency Futures and Options / Debt Instruments / The Term Structure of Interest Rates and the Yield Curve / Equity Instruments

5. Fundamental Analysis

Efficiency of Futures Markets / Fundamental Approach to Price Analysis / Commodities / Financials / Evaluating the Fundamental Data: Further Examples / Sources of Information

6. Technical Analysis

The Chartist Logic / Patterns on Price Charts / Bar Chart Price Patterns / Point-and-Figure Chart Price Patterns / Trend-Following Methods / Character-of-Market Analysis / Structural Theories / Elliott Wave Theory / Trading Systems / To Chart or Not to Chart / Commodity Pools and Program Trading

7. Hedging

Traditional View of Hedging / Hedging with Financial Futures / Hedging: A Portfolio Explanation

8. Options Markets

What Is an Option on Futures? / Option Payoffs / Option Pricing Structure / Market Pricing of Options / Option Traders / Speculation with Options on Futures / Speculative Trading Strategies / Options Pricing in General / The Black–Scholes Model / Put-Call Parity

9. Hedging with Options

Basic Option Hedging Strategies / Comparison of Alternative Hedging Strategies / Ranking Alternative Strategies