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Cotton Futures and Options Education
Cotton futures and options quick facts:
The History of Cotton and Cotton Futures
Trading
These 126-year-old contracts leverage for 50,000 lbs. of
cotton. Cotton future
contracts' antiquity are only rivaled by corn contracts that
began trading about the same time in Chicago that cotton was
trading in New York. Although cotton's economic role has
diminished over the last century, it is still an extremely
important commodity in today's economic picture.
China has led the world in cotton
production for years. During the cold war between the USA
and The Soviet Union, the Soviets invested huge amounts of
capital to make one of the largest producers of cotton in
the world. Uzbekistan is the world's second leading exporter
of cotton. Government reporting for third world producers
lacks for cotton as well as other softs, but for some
countries, such as India and Pakistan, university extension
services provide quality statistics.
Cotton has the ability to grow anywhere
that has ample soil moisture and at least 200 frost free
days per year. Droughts and competition with other crops for
land can cause extreme volatility in cotton futures prices.
While China exports extremely little compared to other
exporters, its demand role is huge and influences
cotton futures
prices. China's stocks also underline the country's
significance. These again are approaching half of world
stocks of cotton and increases in demand from China can
cause cotton futures prices to move dramatically.
The United States is a large consumer of
cotton. Use has trended higher due to consumers' favor for
cotton clothing. Textiles have a thin profit margin. It's
made worse by competition from man-made fibers, such as
polyester and rayon which are far cheaper than cotton.
Recent increases in petroleum prices have once again made
cotton competitive because the man made fibers are usually
petroleum based. Cotton futures prices are sometimes
affected by oil prices.
About two thirds
of the harvested crop is composed of the seed, which is
crushed to separate its three products–oil, meal and hulls.
Cottonseed oil is a common component of many food items,
used primarily as a cooking oil, shortening and salad
dressing. The oil is used extensively in the preparation of
such snack foods as crackers, cookies and chips. The meal
and hulls are used as livestock, poultry and fish feed and
as fertilizer.
When is U.S. cotton planted?
Planting begins as early as Feb. 1 in South Texas and as
late as June 1 in northern areas of the Cotton Belt.
When is U.S. cotton harvested?
Harvesting of the crop typically begins in July in South
Texas and extends to late November in more northern climates
Where is cotton grown in the U.S.?
Ninety-eight percent of the cotton is
grown in: Alabama, Arkansas, Arizona, California, Georgia,
Louisiana, Mississippi, Missouri, New Mexico, North
Carolina, Oklahoma, South Carolina, Tennessee and Texas. The
remaining 2 percent is grown in Kansas, Florida and
Virginia.
Who are the largest global producers of
cotton?
China, USA and India produce roughly 80%
of the global supply of cotton. Uzbekistan is the world's
largest exporter of cotton.
Cotton
and U.S. Currency
According to the Bureau of Engraving and
Printing, US paper currency is made up of 75% cotton and 25%
linen. In other words, there are .75 of a pound of cotton in
each pound of dollar bills. Most people erroneously believe
that the currency is made up of paper from tree fibers.
Cotton futures and cotton options contracts trading has
gained quite a lot of volume over the last few years as more
people learn about how cotton futures along with other
futures contracts have a place in many aggressive investors'
portfolios.
Cotton No. 2 Futures
Contract Specifications
Cotton Futures
Trading
Unit -
50,000
lbs. net weight (approximately 100 bales).
Trading
Hours -
10:30 pm
to 2:15pm NY time. (verify with exchange)
Price
Quotation -
Cents and
hundredths of cent per pound
Trading
Months -
Current
month plus one or more of the next twenty-three succeeding
months. Active trading months: March, May, July, October,
December.
Ticker
Symbol -
CT
Minimum
Fluctuation -
1/100 of a
cent (one "point") per pound below 95 cents per pound. 5/100
of a cent (or five "points") per pound at prices of 95 cents
per pound on higher. Spreads may always trade and be quoted
in one point increments, regardless of price levels.
Last
Trading Day -
Seventeen
business days from end of spot month.
First
Notice Day -
Five
business days from end of preceding month.
Daily
Price Limit -
3 cents
above or below previous day's settlement price. However, if
any contract months settle at or above $1.10 per pound, all
contract months will trade with 4 cent price limits. Should
no month settle at or above $1.10 per pound, price limits
stay (or revert) to 3 cents per pound. Spot month - no limit
on or after first notice day.
Point
Value -
$5.00
Delivery
Points -
Galveston,
TX; Houston, TX; New Orleans, LA; Memphis, TN;
Greenville/Spartanburg, S.C.
Cotton Options
Trading
Unit -
One New
York Board of Trade Cotton No. 2 Futures Contract
Price
Quotation -
Prices
quoted in cents and hundredths of a cent
Trading
Months -
March,
May, July, October and December. The nearest ten delivery
months will be available for trading.
Ticker
Symbol -
CT
Minimum
Fluctuation -
Prices
quoted in cents and hundredths of a cent
Last
Trading Day -
The last
Friday which proceeds first notice day for the underlying
future by at least five business days
Expiration
Date/Time -
Until 5:00
p.m (New York time) on any trading day including last
trading day. Automatic exercise at one tick or more
in-the-money at expiration on last trading day.
Daily
Price Limits -
None
Strike
Price Increments -
1 cent
increments
Minimum
Price Fluctuation -
1/100 of a
cent
Point
Value -
$5.00
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