Piffer OT - And Other Assorted Nuts Message Board

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Strategies & Market Trends : Piffer OT - And Other Assorted Nuts

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To: Neenny who wrote (6736)	11/6/1999 11:14:00 AM
From: accountclosed	of 63513

a futures contract is a way of locking in a price today for something that you will deliver or have delivered to you at a later date. there are many agricultural futures contracts and this is an area which gave rise to futures trading. using an agricultural futures contract as an example, a farmer can contract today to deliver a railroad car of wheat or whatever he farms six months from now as an example. that way he ties down the price that he will sell his product for. that takes market uncertainty out of the equation and he can make decisions whether he can afford the seed, the equipment he needs, the tractors, the labor, the transportation, etc. so he can do a calculation as to whether the business makes sense. based on such calculations, he can decide what crops he wants to grow. the "spoos" S&P 500 DEC99 1389.10 +2060 cme.com are similar in a few respects. S&P 500 1370.23 +7.59 (+0.56%) is the cash s&p right now. in other words the futures december s&p is the price at which you can buy or sell the s&p index in december. let's say for the sake of argument that the s&p december futures were going for 2000.00 and the cash was 1370.23. if that were so, you could buy today in cash at 1370.23 and sell the future for 2000.00 which would give you the ability to sell something you bought today for a near 50% profit in six weeks. would you do that? i would. so such a situation doesn't arise. as the futures price diverges from the cash price, one or the other has to move. in fact agricultural futures settle in actual delivery of product. but index futures settle in cash divergence from the underlying index. ignore this paragraph as it confuses. i am trying to put something down that might be easily understood. any of this make any sense?

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