Platinum Futures Trading Basics

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Platinum Futures Trading Basics

Platinum futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of platinum (eg. 50 troy ounces) at a predetermined price on a future delivery date.

Some Facts about Platinum

Platinum is a very rare, heavy, ductile, grey-white metal which has a very high melting point. It is also extremely resistant to corrosion and an excellent electrical conductor. Platinum’s role as a catalyst is also the reason that makes it such an important industrial metal. [Click here to learn more the various uses of Platinum. ]

Platinum Futures Exchanges

You can trade Platinum futures at New York Mercantile Exchange (NYMEX) and Tokyo Commodity Exchange (TOCOM).

NYMEX Platinum futures prices are quoted in dollars and cents per ounce and are traded in lot sizes of 50 troy ounces .

TOCOM Platinum futures are traded in units of 500 grams (16.08 troy ounces) and contract prices are quoted in yen per gram.

Exchange & Product Name Symbol Contract Size Initial Margin
NYMEX Platinum Futures
(Price Quotes)
PL 50 troy ounces
(Full Contract Spec)
USD 8,100 (approx. 17%)
(Latest Margin Info)
TOCOM Platinum Futures
(Price Quotes)
500 grams
(Full Contract Spec)
JPY 150,000 (approx. 11%)
(Latest Margin Info)

Platinum Futures Trading Basics

Consumers and producers of platinum can manage platinum price risk by purchasing and selling platinum futures. Platinum producers can employ a short hedge to lock in a selling price for the platinum they produce while businesses that require platinum can utilize a long hedge to secure a purchase price for the commodity they need.

Platinum futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable platinum price movement. Speculators buy platinum futures when they believe that platinum prices will go up. Conversely, they will sell platinum futures when they think that platinum prices will fall.

Learn More About Platinum Futures & Options Trading

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Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

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Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Futures Trading Basics

A futures contract is a standardized contract that calls for the delivery of a specific quantity of a specific product at some time in the future at a predetermined price. Futures contracts are derivative instruments very similar to forward contracts but they differ in some aspects.

Futures contracts are traded in futures exchanges worldwide and covers a wide range of commodities such as agriculture produce, livestock, energy, metals and financial products such as market indices, interest rates and currencies.

Why Trade Futures?

The primary purpose of the futures market is to allow those who wish to manage price risk (the hedgers) to transfer that risk to those who are willing to take that risk (the speculators) in return for an opportunity to profit.

Hedging

Producers and manufacturers can make use of the futures market to hedge the price risk of commodities that they need to purchase or sell in order to protect their profit margins. Businesses employ a long hedge to lock in the price of a raw material that they wish to purchase some time in the future. To lock in a selling price for a product to be sold in the future, a short hedge is used.

Speculation

Speculators assume the price risk that hedgers try to avoid in return for a possibility of profits. They have no commercial interest in the underlying commodities and are motivated purely by the potential for profits. Although this makes them appear to be mere gamblers, speculators do play an important role in the futures market. Without speculators bridging the gap between buyers and sellers with a commercial interest, the market will be less fluid, less efficient and more volatile.

Futures speculators take up a long futures position when they believe that the price of the underlying will rise. They take up a short futures position when they believe that the price of the underlying will fall.

Example of a Futures Trade

In March, a speculator bullish on soybeans purchased one May Soybeans futures at $9.60 per bushel. Each Soybeans futures contract represents 5000 bushels and requires an initial margin of $3500. To open the futures position, $3500 is debited from his trading account and held by the exchange clearinghouse.

Come May, the price of soybeans has gone up to $10 per bushel. Since the price has gone up by $0.40 per bushel, the speculator can exit his futures position with a profit of $0.40 x 5000 bushels = $2000.

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Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

The Basics of U.S. Treasury Futures

INTRODUCTION

CBOT Treasury futures are standardized contracts for the purchase and sale of U.S. government notes or bonds for future delivery. The U.S. government bond market offers the greatest liquidity, security (in terms of credit worthiness), and diversity among the government bond markets across the globe. The U.S. government borrows through the U.S. bond market to finance its maturing debt and its expenditures. As of December 2020, there was $15.6 trillion of U.S. government bonds and notes outstanding as marketable debt.

The U.S. government borrows money primarily by issuing bonds and notes for a fixed term, e.g. 2-year, 5-year, 10-year, and 30-year terms at fixed interest rates determined by the prevailing interest rates in the marketplace at the time of issuance of the bonds. Strictly speaking, U.S. Treasury bonds have original maturities of greater than 10 years at time of issuance, and U.S. Treasury notes have maturities ranging from 2-Yrs to 10Yrs (2, 3, 5, 7 and 10yr). For the purpose of this note, U.S. Treasury bonds and notes are applicable for general references to the U.S. bond market or U.S. bonds unless described otherwise.

U.S. Treasury bonds trade around the clock leading to constant price fluctuations. In general, bond prices move in inverse proportion to interest rates or yields. In a rising rate environment, bondholders will witness their principal value erode; in a declining rate environment, the market value of their bonds will increase.

IF Yields Rise ▲ THEN Prices Fall ▼
IF Yields Fall ▼ THEN Prices Rise ▲

U.S. Treasury futures and options contracts are available for each of the Treasury benchmark tenors: 2-year, 5-year, 10-year, and 30-year. Additionally, CME Group offers Ultra 10-Year Note and Ultra T-Bond futures which offer greater precision for trading the 10-year and 30-year maturity points on the yield curve respectively..

Each of the bond and note future contracts has an associated delivery bond basket that defines the range of bonds by maturity that can be delivered by the seller to the buyer in the delivery month. For example, the 5-year contract delivers into any U.S. government fixed coupon bond that has a remaining maturity of longer than 4 years and 2 months and an original maturity of no more than 5 years and 3 months. The delivery mechanism ensures the integrity of futures prices by ensuring that they are very closely tied to the prices of U.S. government bonds and their yields (interest rates). In practice, most participants trade U.S. Treasury futures contracts with the intent of either closing out the futures position or rolling them into longer expiry futures contracts. U.S. Treasury futures are listed on the March, June, September, and December quarterly cycles. Since 2000, only about 7% of Treasury futures positions result in physical delivery at expiration.

Table 1: CBOT Treasury Futures Contract Details

2-Year T-Note Futures

5-Year T-Note Futures

10-Year T-Note Futures

Ultra 10-Year T-Note Futures

Ultra T-Bond Futures

1 3/4 to 2 years

4 1/6 to 5 1/4 years

6 1/2 to 10 years

9 5/12 to 10 Years

15 years up to 25 years

25 years to 30 years

March quarterly cycle: March, June, September, and December

Electronic: 5:00 pm – 4:00 pm, Sunday – Friday (Central Time)

Last Trading & Delivery Day

Last business day of contract month; delivery may occur on any day of contract month up to and including last business day of month

Day prior to last seven (7) business days of contract month; delivery may occur on any day of contract month up to and including last business day of month

In percent of par to one-eighth of 1/32nd of 1% of par

In percent of par to one quarter of 1/32nd of 1% of par

In percent of par to one-half of 1/32nd of 1% of par

In percent of par to one-half of 1/32nd of 1% of par

In percent of par to 1/32nd of 1% of par

In percent of par to 1/32nd of 1% of par

Minimum Tick Value

Each U.S. Treasury futures contract has a face value at maturity of $100,000 with the exceptions of 2-year and 3-year U.S. Treasury futures contracts which have face value at maturity of $200,000. Prices are quoted in points per $2000 for the 2-year and 3-year contract and points per $1000 for the all other U.S. Treasury futures. The fractional points are expressed in 1/32nd in line with the convention in US government bond market. The minimum tick size for the 30-year (T-Bond) and Ultra T-Bond contracts is 1/32nd of one point ($31.25), 10-Year and Ultra 10-Year is half of 1/32 nd of one point ($15.625), 5-year is one-quarter of 1/32nd of one point ($7.8125), and 2-year is one-eighth of 1/32 nd of one point ($7.8125).

Treasury futures are standardized, highly liquid, and transparent instruments. In 2020, CBOT U.S. Treasury Futures traded an average of 4.2 million contracts daily. In addition, futures are a neutral security, which can be easily traded from the long or short sides. Treasury futures positions provide the security of facing CME Clearing, which acts as the counterparty to every trade*. Finally, U.S. Treasury futures provide easy access to leverage and both capital and operational efficiencies. These are among the reasons U.S. Treasury futures have a broad and diverse mix of customer types including Asset Managers, Banks, Corporate Treasurers, Hedge Funds, Insurance Companies, Mortgage Bankers, Pension Funds, Primary Dealers, & Proprietary Traders. The vast hedging and speculative activity in U.S. Treasury futures create nearly constant price fluctuations providing excellent opportunities trading for individual traders in addition to institutional trading accounts.

Trading Examples – U.S. Treasury futures:

Historically, when the economy strengthens, interest rates are likely to rise for a number of reasons such as:

  • increased demand for loans
  • asset allocation out of bonds (typically considered a safe asset class) into stocks (typically considered a risky asset class)
  • increased likelihood of interest rate increases by the Federal Reserve Board

When interest rates rise, U.S. Treasury futures prices fall.

Similarly, when the economy weakens, interest rates are likely to fall for reasons such as:

  • decreased demand for loans
  • asset allocation out of stocks into bonds
  • increased likelihood of interest rate cuts by the Federal Reserve Board

The US economy is more like a cruise liner than a speed boat in that it often stays on a path of strengthening or weakening for several months to a few years. This causes broader moves in interest rates that are spread over considerable time periods as opposed to very short periods. Nevertheless, U.S. Treasury futures produce short term trading opportunities, as demonstrated in the following examples.

Example 1: A trader believes that the U.S. economy is strengthening and intermediate Treasury yields will increase (5-Yr and 10-Yr).

This trader sells 10 contracts of March 2020 5-year T-Note futures at 114 25/32.

The trader’s view proves correct. The economic numbers continue to show that the US economy is strengthening. 5-Yr Treasury yields rise, and the March 2020 5-year T-Note futures price declines. The trader buys back the 10 March 2020 5-year T-Note futures contracts at 114 03/32.

Profit on this example trade = 10 * (114 25/32 – 114 03/32) * $1000 = $6,875

(Profit or Loss = Number of contracts* Change in price * $1000)

The profit calculation in this example can also be expressed in terms of minimum ticks or simply referred to as ticks. The tick size for 5-year contract is ¼ of 1/32nd of 1 point.

The $ value for minimum tic of the 5-year contract is $7.8125.

Number of ticks made on the trade = (25/32 – 3/32) * 4 = 88 Ticks

Profit on this example trade = 10 Contracts X 88 Ticks X $7.8125 = $6875

Example 2: The monthly U.S. non-farm payroll number on the first Friday of a month comes out significantly weaker than expected. This indicates a surprisingly weakening economy. As a result,

Treasury yields decline, and U.S. Treasury futures prices rise. A trader notices that the March 2020 10-year T-Note futures have responded to the report by posting modest rally from 121 05/32 to only 121 15/32. He believes that the weakness in the number was a significant surprise and more participants will soon need to buy notes.

This trader buys 10 contracts of March 2020 10-year T-Note futures at 121 15.5/32.

The trader’s view proves correct. Intermediate Treasury yields continue to fall, and the

10-year T-Note future price rises further. An hour later the trader sells back the 10

March 2020 10-Yr T-Note futures contracts at 121 23/32.

Profit on this example trade = 10 * (121 23/32 – 121 15.5/32) * $1000 = $2344 (rounded to nearest dollar)

Similar to the previous example, let us recalculate the profit in this example using ticks. The tick size for 10-year contract is 1/2 of 1/32nd of 1 point. The $ value for minimum tic of the 10-year contract is $15.625.

Number of ticks made on the trade = (23/32 – 15.5/32) * 2 = 15 Ticks

Profit on this example trade = 10 Contracts X 15 Ticks X $15.625 = $2344 (rounded to nearest dollar)

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