What the Heck Is the ‘Underlying Product” I Am Agreeing to Buy or Sell When Trading Stock Indexes?
Tuesday, March 30th, 2010 at
1:43 pm
amerriboy asked:
What the heck is the ‘underlying product’ at a specific price, and future date am I agreeing to buy or sell when I trade Stock Index Futures. I figure a E-mini Futures Contract for a commodity such as corn or soy beans derives it’s value from the ‘underlying product” the commodity itself hence the contract is a derivative. So my question is …On what asset, is a flipping statistic such as a ‘stock index’ based. I need to be enlightened Thanks?
What the heck is the ‘underlying product’ at a specific price, and future date am I agreeing to buy or sell when I trade Stock Index Futures. I figure a E-mini Futures Contract for a commodity such as corn or soy beans derives it’s value from the ‘underlying product” the commodity itself hence the contract is a derivative. So my question is …On what asset, is a flipping statistic such as a ‘stock index’ based. I need to be enlightened Thanks?
Tagged with: Soy Beans • Stock Index Futures • What The Heck
Filed under: Commodity Trading
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If you don’t know then you shouldn’t be doing it. The commonly traded indexes are the Dow Jones Industrials, a basket of thirty companies, and the Standard & Poors 500, which last I saw was only 498 as they had to drop a couple and with this market flux hadn’t announced (or figured out) the replacements.
You can do the same with some ETFs called DIA and SPY. To hedge your bets in the indexes, may I suggest you buy the ETFs as a store of value should you go too close to the wire on the futures and be called to deliver. The ETFs will hold those stocks and their relative value (NAV) so you sell the ETFs, buy the component stocks, and then you can deliver if called for.
Better yet, just buy the ETFs and leave the leveraged stuff alone until you are more ready.
the stocks that are in the actual index – S&P 500 – an index fund for the S&P 500 with have those 500 stocks included – in the same rations as the Broad index uses to calculate the Index price