Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 93

    contracts to a future month. Doing so involves buying back the contracts (settling the short) and at the same time selling contracts for a future delivery date using a spread order. Obviously with this move you would still incur a loss on your original contracts but at least you can delay the delivery date (and collect proceeds from the second sale minus the loss from the settlement) and by that time the underlying product may decline in price and you may be able to establish a profit. If not, you could repeat the rollover as many times as desired. Just remember that with every short settlement you are probably taking a loss (and paying commissions) which would add up with each rollover. So at some point you may decide to cut your losses and settle the final rollover for good without doing a follow-up rollover.

Trading spreads is a popular strategy among traders and there are numerous types of spreads that can be used. The Options chapter will also have some information on these strategies using options. Consult your broker for more information on spread strategies, but beware. Spreads can be complicated to master, and thus costly for the uninitiated.

Premium And Discount

Futures prices at any given time are often different than their underlying commodity spot prices (the difference is sometimes referred to as basis). For example, gold futures prices are virtually always above the cash (spot) price of gold. The reason is that gold prices are volatile and are assumed to go up over time.When you buy gold contracts you pay a little (or a lot) extra to lock in your price for the delivery down the road. For example, if gold trades at $300/oz. in the spot (cash) market, you may have to pay $305/oz. to buy gold contracts with delivery in


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    Table of Contents Copyright and Disclaimer Foreword Money
    Bonds Futures Stocks Options
    Mutual Funds Retirement Final Words Appendix A

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