US Capital Markets

Derivatives

The most popular kinds of derivatives are:

  • Options.
  • Futures.

The derivatives market began to develop in the seventies and gathered strength in the eighties and nineties.  There are a wide variety of derivatives available in the US.  Some of them are traded directly, over-the-counter, between brokers and some of them are listed for trade in derivative exchanges.

Options


Options Versus Futures

A contract giving the holder the right, but not the obligation, hence, "option," to buy or sell a futures contract in a given commodity at a specified price at any time between now and the expiration of the option contract.

Futures

A Futures Contract is an agreement between a buyer and a seller to receive and deliver on a future date a specified amount of a product at an agreed price.

 

Derivative Exchanges

In the US there are a few exchanges dedicated to derivatives.

This is a list of the six large derivative exchanges.

  • CBOT – The Chicago Board of Trade.
  • CBOE – The Chicago Board Options Exchange.
  • CME – The Chicago Mercantile Exchange.
  • AMEX – The American Stock Exchange.
  • PCX – The Pacific Exchange.
  • NYMEX – The New York Mercantile Exchange.

The following survey presents a few examples of the derivative exchanges and of the derivatives that are traded there.

 

 

CBOT – The Chicago Board of Trade

The CBOT exchange focuses on futures trading.

Here are a few examples of popular futures that are traded at the CBOT.

  • Agricultural Commodities Futures

Corn Futures.

Wheat Futures.

 

  • Index Futures

Futures on the DJIA.

 

  • Financial Futures

10-Year Treasury Notes Futures.

30-Year Treasury Bonds Futures.

 

  • Metals Futures

Gold Futures.

Silver Futures.

 

The Chicago Board of Trade, established in 1848, is the world’s oldest futures and options exchange. More than 50 different options and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading.

Volumes at the exchange in 2003 were a record breaking 454 million contracts. On July, 12 2007, the CBOT merged with the CME and ceased to exist as an independent entity.

 

CBOE – The Chicago Board Options Exchange

The CBOE exchange specializes in options.

Here are a few examples of popular options traded at the CBOE.

  • Equity Options

Options on more than 1,500 American stocks are traded at the CBOE.

 

  • Index Options

Options on the S&P 500.

Options on the Dow Jones.

Options on the NASDAQ-100.

 

  • Options on ETFs.

Options on Qubes.

Options on Diamonds.

Options on iShares.

 

The CBOE is one of the world’s largest options exchanges with an annual trade of over 450 million options contracts.

The exchange was established in 1973, when it created and listed the first exchange-listed standardized stock options.

 

CME – The Chicago Mercantile Exchange

Futures are traded at the CME.

Here are a few examples:

  • Commodities Futures

Live Cattle Futures.

Frozen Pork Bellies Futures.

  • Currency Futures

Euro Futures.

Pound Sterling Futures.

Swiss Frank Futures.

  • Interest Rate Futures

LIBOR Rate Futures.

  • Index Futures

Futures on the S&P 500.

Futures on the Russell 2,000.

Long Term Options

Most options that are traded in America expire after a year or less.  Investors that are interested in long-term options are able to buy special ones which expire in up to three years.  These options are called LEAPS – Long-Term Equity Anticipation Securities.

 

There are LEAPS available on individual stocks – Equity LEAPS – and there are options that are connected to stock indices – Index LEAPS.

 

LEAPS are traded in the following exchanges:

  • Chicago Board Options Exchange.
  • AMEX.
  • Pacific Exchange.
  • Philadelphia Stock Exchange.
Derivatives536Derivatives