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Options by Michael C Thomsett

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Chapter 16 Options on Futures: Leveraging Your Leverage

Beware of all enterprises that require new clothes.

̶̶ Henry David Thoreau, Walden, 1854

A futures contract is similar to stock, but the contract itself is written on an underlying commodity (e.g., agricultural, precious metal, or energy). The contract sets the price for future delivery of the commodity.

Futures are different because the standardized terms vary. With options, you know that every option controls 100 shares of the underlying stock. With futures, the unit of commodity is based on how it is measured (tons, ounces, pounds, bushels, or barrels, for example). With this important difference in mind, an option on a futures contract also varies and controls different levels of the ...

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