Stock Index Futures Options
The option strategies you have learned throughout this book can be applied to fu- tures options. This chapter describes futures basics; provides a list of popular stock index futures; describes stock index futures options; provides a sample option chain; provides examples of basic strategies; describes differences in volatility at various strike prices; addresses time decay, taxes, and margin; and provides a bonus section demonstrating a short strangle. This chapter addresses options on stock index futures, and the principles are primarily illustrated using S&P 500 futures. Stock index futures option strategies are illustrated in Appendix C. The first part of this chapter covers the basics of underlying futures and the second part covers options.
An attraction of futures trading is substantially lower margin requirements in comparison to margin on cash market stocks, ETFs, and indexes. This freedom to trade is viewed by many traders as a significant advantage of trading futures. Many traders also find futures options attractive because a futures offers unique products, a relatively favorable commission structure, extended hours of trading, and the ability to easily trade long or short.
Stock index futures are futures contracts that track the value of an underlying index; for example, the value of S&P 500 futures is derived from the value underlying the S&P 500 index (SPX). Futures exchanges offer options on such products as stock ...