In the case of futures on equity indexes such as the S&P 500 contract, it is possible to make a careful computation of how much a futures contract should cost (in theory) based on the current market prices of the stocks in the index, current interest rates, how long until the contract expires, etc. This
All outstanding futures contracts must be settled either by offsetting transactions or delivery of the underlying commodities. It has been estimated that approximately 3% of all transactions are actually settled by a customer making or taking delivery of physical commodities. Futures Delivery Terms Each contract market decides which type of delivery notice will be used
A crack spread is the difference between crude oil, gasoline, and heating oil prices. Refiners produce or buy crude oil and sell the petroleum products. The crack spread defines the value added by the refining operation. In analysis of the spread there are 3 standard spreads to work from. The 5-3-2 spread reflects 5 barrels
A futures contract is an agreement to buy (or sell) some commodity at a fixed price on a fixed date. In other words, it is a contract between two parties; the holder of the future has not only the right but also the obligation to buy (or sell) the specified commodity. This differs sharply from
Exchange Traded Notes (ETNs) are a derivative issued by banks to track the performance of some market index. Like a stock or exchange-traded fund, an ETN trades daily on an exchange. These derivatives were first issued in 2006 by Barclays Bank and now are issued by many different banks. An ETN has some similarities to
The Black Scholes Model is an approach for calculating the value of a stock option. This article presents some detail about the pricing model. The Black and Scholes Option Pricing Model didn’t appear overnight, in fact, Fisher Black started out working to create a valuation model for stock warrants. This work involved calculating a derivative
A derivative is a contract with financial performance that is derived from the performance of something else. That “something else” is an underlying asset commonly termed “the underlying” and may be another financial instrument, another derivative, or an index of some kind. An example is a call option on a stock, in which the option