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Copper Futures and Options Education
Copper futures and options quick facts:
The History of Copper and Copper Futures
Trading
Copper is a commodity whose prices can
directly reflect the current state of the world economy
because of its many uses in industrialized countries. It is
the world's third most widely used metal, only iron and
aluminum are used more, and is primarily used in highly
cyclical industries such as infrastructure, construction and
industrial machinery manufacturing.
Copper was believed to be first worked
about 7,000 years ago in China. Its softness, color, and
presence in nature enabled it to be easily mined and
fashioned into primitive utensils, tools, and weapons. Two
thousand years later, the West learned to alloy copper with
tin, producing bronze and giving rise to a new age, The
Bronze Age.
Copper has been called by many future
trading fundamental analysts as the only commodity with a
PhD. in economics because its rising prices sometimes
precede periods of economic growth. This has been attributed
to copper’s industrial uses in electrical and plumbing for
new homes and other manufacturing uses.
Copper market participants across the board use COMEX
Division high-grade copper
futures and options to hedge
price risk, and the copper future and copper option
contracts are used as investment vehicles by large and small
copper future and copper option traders.
During the September 11 terrorist attacks the COMEX was
destroyed but within days of the disaster the
copper futures
and copper options markets were trading again. This stands
as a testament to the strength and reliability of the
industrial metals future markets and the commodity
exchanges.
Exchange-Based Copper Futures and Copper
Options Trading
The New York Mercantile Exchange merged
with the Commodity Exchange, Inc., in August 1994 to become
the world's largest physical commodity exchange. It has
since merged again as the Chicago Mercantile Exchange bought
NYMEX and COMEX in 2008.
The COMEX Division copper futures market
stands alone in its reliable price transparency and market
safeguards that protect all participants. Trading is
conducted as an open auction, price discovery is
straightforward and exclusive of brokerage fees, price
dissemination is virtually instantaneous, and, at the end of
the day, all positions are marked-to-market and obligations
settled in cash. There is no counterparty credit risk since
the Exchange and its clearinghouse, which is composed of
some of the most highly regarded firms in the financial
services industry, stands on the other side of every deal.
The Exchange also readily provides all
pertinent statistical information for copper future
contracts including trading volume, open interest, and
warehouse stocks in an accurate, reliable, and timely
fashion.
Copper Futures
Copper futures contracts are firm
commitments to make or accept delivery of a specified
quantity and quality of a commodity during a specific month
in the future at a price agreed upon at the time the
commitment is made. Less than 1% of all copper futures
contracts traded each year result in delivery of the
underlying commodities. Instead, traders generally offset
their copper futures positions before their contracts
mature. The difference between the initial purchase or sale
and the price of the offsetting transaction represents the
realized profit or loss.
Trading in COMEX Division high-grade
copper future
contracts are conducted for delivery during the current
calendar month and the next 23 consecutive months.
Copper Options
Because of the global nature of the
metals markets, their prices can be volatile. The metals
industry and other commercial markets participants have
learned to cope with the price uncertainty by actively
hedging against adverse price movements. While futures are
among the primary risk management tools available, options
on futures open a host of versatile, economical trading
strategies. Copper options are often used.
High Grade Copper Futures and
Copper Options
Contract Specifications
Trading
Unit
Copper
Future:
25,000 pounds
Copper
Options:
one COMEX Division high-grade copper futures contract
Trading
Hours
Copper
Futures and Options:
8:10 A.M. to 2:00 P.M. for the open outcry session. (verify
with exchange)
Trading
Months
Copper
Futures:
Trading is conducted for delivery during the current
calendar month and the next 23 consecutive calendar months.
Copper
Options:
Copper options are offered for trading
in each of the following contract months: March, May, July,
September, and December up to one year to expiration. Serial
months are also listed so there are always three consecutive
nearby months traded. Twenty-four-month copper options are
listed when July and December become the 24th
month. The options are American-style and can be exercised
at any time up to expiration.
Price
Quotation
Copper
Futures and Options:
cents per pound
Minimum
Price Fluctuation
Copper
Futures and Options:
Price changes are registered in multiples of five one
hundredths of one cent ($0.0005, or $0.05) per pound, equal
to $12.50 per contract. A fluctuation of $0.01 is equal to
$250 per contract.
Maximum
Daily Price Fluctuation
Copper
Futures:
Initial
price limit, based upon the preceding day's settlement
price, is $0.20 per pound. Two minutes after the two most
active months trade at the limit, trading in all months of
futures and options will cease for a 15-minute period.
Trading will also cease if either of the two active months
is bid at the upper limit or offered at the lower limit for
two minutes without trading.
Trading will not cease if the limit is
reached during the final 20 minutes of a day's trading. If
the limit is reached during the final half-hour of trading,
trading will resume no later than 10 minutes before the
normal closing time.
When trading resumes after a cessation of
trading, the price limits will be expanded by increments of
100%.
Option:
No
price limit.
Last
Trading Day
Copper
Futures:
Terminates at the close of business of the third last
business day of the maturing delivery month.
Copper
Options:
Expire on the fourth last business day of the month prior to
the delivery month of the underlying futures contract.
Exercise
of Options
Until 3 P.M., New York time, on any
business day for which the option is listed for trading. On
expiration day, the buyer has until 4P.M., New York time, to
exercise an option.
Option
Strike Price Intervals
Options:
$0.01 per pound apart for strike prices below $0.40. $0.02
per pound apart for strike prices between $0.40 and $1.20,
and $0.05 apart for strike prices above $1.20.
Delivery
Copper may be delivered against the
high-grade copper futures contract only from a warehouse in
the United States licensed or designated by the Exchange.
Delivery must be made upon a domestic basis; import duties
or import taxes, if any, must be paid by the seller, and
shall be made without any allowance for freight.
Margin
Requirements
Margins are required for open copper
futures and short options positions. The margin requirement
for an options purchaser will never exceed the premium paid.
Trading
Symbols
Futures:
HG
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