Copper Futures and Copper Options Market

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Dear clients and students of the commodity markets, the following information should answer all of your questions about Copper Futures and Copper Options. You may also call 800-915-4716 or email tkfutures@earthlink.net  your copper future and copper options questions to be answered by a seasoned professional.

The History of Copper and CME 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 construction and industrial machinery manufacturing.

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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.

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 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.

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.

Why Trade COMEX Division Copper Futures and  Copper Options?

Copper's importance in world markets and responsiveness to world events make COMEX Division high-grade copper futures and options an important risk management tool for commercial interests as well as an exciting, potentially rewarding opportunity for private investors who seek to profit by correctly anticipating price changes.

Trading on the COMEX Division offers a number of advantages:

·         The copper futures contracts are liquid financial instruments that are standardized by quality and quantity

·         The Exchange offers cost-efficient trading and risk management opportunities.

·         COMEX Division copper future prices are widely and instantaneously disseminated, serving as world reference prices.

·         COMEX Division markets allow hedgers and investors to trade anonymously through futures brokers.

·         The depth of the market allows the contracts to be easily liquidated prior to required receipt or delivery of the underlying commodity.

·         While copper futures contracts are seldom used for delivery, if delivery is required, performance is guaranteed. Counterparty risk is absent from transactions executed on the Exchange.

·         Contract performance in the copper futures and options contract is supported by a strong financial system, backed by the COMEX Division clearing members, including some of the well-respected names in the banking and financial services industries.

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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 is 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 on futures provide:

·         A limit on the buyer’s potential loss to the premium paid for the option.

·         The ability to hedge cash and futures positions against an adverse price direction without foregoing the benefits of favorable price movements.

·         The availability of hedging insurance at many different levels of cost and degrees of protection.

·         A way for businesses and investors to act aggressively or conservatively on views about the direction and volatility of copper prices.

By using copper options alone, or in combination with copper future contracts, strategies can be found to cover virtually any risk profile, time horizon, or cost consideration.

COMEX Division 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 or December becomes the 24^th month. The options are American-style and can be exercised at any time up to expiration.

There are two types of options, calls and puts. A call gives the holder of the option the right, but not the obligation to buy the underlying futures contract. Conversely, a put gives the holder the right, but not the obligation to sell the underlying future contract. Puts are usually bought when the expectation is for neutral or falling prices; a call is usually purchased when the expectation is for rising prices. The price at which an option is bought or sold is the premium.

Margin Requirements

All New York Mercantile Exchange markets, including the COMEX Division copper futures and options markets, hold a key advantage over many other trading forums because all open positions are marked-to-market and settled in cash at the end of the day. This ensures that market participants do not incur obligations beyond their ability to perform, protecting the other participants in the market and preventing trading losses from being shielded from company management.

Whenever a futures or short options position is initiated, the Exchange clearinghouse collects a margin payment as a good faith deposit, or performance bond, from the clearing member, which in turn collects a margin payment from the customer.

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.

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 24^th 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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