Futures &

Options
By: Kelly Tagnolli
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What is a Futures Contract?

Why would you want to

invest in one?
Futures Contract:
➜ If you are a seller of
➜ a contract where a flour and a nearby baker
seller agrees to needs some to make
cupcakes for his bakery.
provide a particular You might want to make a
good to a buyer on a futures contract with him
specified future date because that way if flour
becomes more expensive to
at an agreed upon make you as the flour
price maker will still be making
money.
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How can you make money by entering

into a Futures Contract?
➜ Making a prediction on what we think the price
of a specific product in the future months
➜ Example: If I am buying wheat from a farmer at
$3 a brussel and I think the market price will be
$4 sixth months from now, I would invest in a
futures contract with the farmer so that way I
save that extra $1 when buying it and then I
could then sell the wheat to someone else for
the higher market price and make more money
than I paid for them originally
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“
What happens if you
guess wrong about the
future market prices of the
wheat?
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You Would Lose Money!

Outcome:
Situation: When buying the brussels
at $3 a brussel and then
you thought the trying to sell them
future market later, you would only be
selling them at the
price for wheat
current market price
was going to be $4 which means you would
a brussel but it lose money than you
originally paid for the
ends up decreasing
brussels
to $2 a brussel.
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What are Currency Futures?

Similar to a regular Futures Contract…
➜ If you believe the price of changing regular US
currency into euros or other world currencies
will rise in the next sixth months, you could invest
in a futures contract and use the trading price
right now instead of the future price
➜ Like before, if you guess wrong about the future
price and it ends up dropping, you could end up
losing more money than you originally traded in
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What is an option?

A little different from a futures contract...

➜ A contract that gives the owner of the
option the right to, but not the obligation
to buy or sell shares of a stock at a
specified price or before a specified date
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Types of Options:

Put Options:
Call Options: A Put Option let’s the owner
Gives an owner of a stock,
of the stock & share have
the option to buy shares of
the ok to sell the stock that
stock for money within the
they own at a certain period
amount of money that the
of time
call option contract says

the person can buy the stock

for!