E-commodities - Education

As early as 700 B.C., the Mesopotamian merchants used silver as a form of exchange. Later, many other civilizations also came to recognize the inherent value of silver as a trading metal.

The ancient Greeks minted the drachma, which contained 1/8th ounce of silver; and in Rome, the basic coin was the denarius, weighing 1/7th ounce. And let’s not forget the English shilling "sterling," originally denoting a specific weight of silver, which has come to mean excellence.

Today, millions of people throughout the world recognize silver’s intrinsic value and have made it popular as an affordable investment. In the United States, Individual Retirement Account (IRA) participants can invest a portion of their investment portfolio in silver bullion coins and silver bullion bars provided that they are of a fineness equal to or exceeding 99.9 percent silver.

In ancient times, silver deposits were plentiful on or near the earth's surface. Relics of ancient civilizations include jewelry, religious artifacts, and food vessels formed from the durable, malleable metal.

In 1792, silver assumed a key role in the United States monetary system when Congress based the currency on the silver dollar, and its fixed relationship to gold. Silver was used for the nation's coinage until its use was discontinued in 1965.

At the turn of the century, an even more important economic function was emerging for silver, that of an industrial raw material. Silver has various industrial applications.

Today, silver is sought as a valuable and practical industrial commodity, and as an appealing investment. The largest industrial users of silver are the photographic, jewelry, and electronic industries.

Mining companies, fabricators of finished products, and users of silver-content industrial materials can use the COMEX Division silver future and silver options contracts to manage their price risk. COMEX has recently merged to become part of The New York Merchantile Exchange (NYMEX). As a precious metal, silver and silver future contracts also play an important role in investment portfolios as an inflationary hedge.

During the September 11 terrorist attacks the COMEX was destroyed but within days the silver futures and silver options markets were trading again. This is a testament to the strength and reliability of the metal futures markets and the commodity exchanges.

Why Trade COMEX Division Silver Futures and Options?

Silver's importance in world markets and responsiveness to world events make COMEX Division silver future and options an important risk management tool for commercial interests as well as an exciting, potentially rewarding opportunity for those investors who seek to profit by correctly anticipating price changes.

Trading silver futures on the COMEX Division offers a number of advantages:

· The contracts are standardized by quality and quantity, are widely accepted, and, therefore are liquid financial instruments.

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

· COMEX Division silver futures prices are widely and instantaneously disseminated, serving as world reference prices.

· COMEX Division markets allow hedgers and investors to trade anonymously through silver futures brokers, who act as independent agents for traders.

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

· While silver 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 silver futures and options contract is supported by a strong financial system, backed by the COMEX Division clearing members, including some of the strongest names in the banking and financial services industries.

· The Exchange offers safe, fair, and orderly markets protected by its rigorous financial standards and surveillance procedures.

Silver Future Contracts

Silver futures contracts are firm commitments to make or accept delivery of a specified quantity or quality of a commodity during a specific month in the futures at a price agreed upon at the time the commitment is made. Approximately 1% of silver futures contracts traded each year result in delivery of the underlying commodities. Instead, traders generally offset their futures positions before their contracts mature. The difference between the initial purchase or sale price and the price of the offsetting transaction represents the realized profit or loss.

Trading in COMEX Division silver future contracts is conducted for delivery during the current calendar month, any January, March, May, and September thereafter falling within a 23-month period and any July and December falling within a 60-month period, beginning with the current month.

Silver Options

Because of the global nature of the metals markets, their prices can be volatile. The metals industry and other commercial market participants have learned to cope with this price uncertainty by actively hedging against adverse price movements. While silver futures are among the primary risk management tools available, options on futures open a host of versatile, economical trading strategies.

Options on silver futures provide:

· The ability to hedge 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 business and investors to act aggressively or conservatively on views about the direction and volatility of precious metals and silver prices.

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

COMEX Division silver options are offered for trading in each of the following contract months: March, May, July, September, and December. Additional contract months - January, February, April, June, August, October, and November - will be listed for trading for a period of two months. A 24-month option is added on a July and December cycle. 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, the put gives the holder the right, but not the obligation to sell the underlying futures 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.

COMEX Division Silver Futures and Options

Contract Specifications

Silver Futures and Options: 8:25A.M. To 1:25P.M., New York time, for the open outcry session.

Silver Futures: Trading is conducted for delivery during the current calendar month, the next two calendar months, any January, March, May, and September thereafter falling within a 23-month period, and any July and December falling within a 60-month period beginning with the current month.

Silver Options: The nearest five of the following contract months: March, May, July, September, and December. Additional contract months - January, February, April, June, August, October, and November - will be listed for trading for a period of two months. In addition, a 24-month option is added on a July - December cycle.

Silver Futures: Price changes for outright transactions, including exchanges of futures for physical (EFP), are in multiples of one-half cent ($0.005) per troy ounce, equivalent to $25 per contract. For straddle or spread transactions, as well as the determination of settlement prices, the price changes are registered in multiples of one-tenth of a cent ($0.001) per troy ounce equivalent to $5 per contract. A fluctuation of one cent ($0.01) is equivalent to $50 per contract.

Silver Futures: Initial price limit of $1.50 above or below the preceding day's settlement price. Two minutes after either of the two most active months’s trades at its limit, trades in all months and in silver options will cease for a 15-minute period.

Silver Futures: At the close of business on the third last business of the maturing delivery month.

Options: Second Friday of the month prior to the delivery month of the underlying futures contract. Two-month options - second Friday of the calendar month which is two months after the month in which the option is listed.

Until 3:00P.M., New York time, on any business day for which the option is listed for trading. On expiration day, the buyer has until 4:00P.M., New York time, to exercise an option.

Twenty-five cents ($0.25) per ounce apart for strike prices below $8.00, $0.50 per ounce apart for strike prices between $8.00 and $15.00, and $1.00 per ounce apart for strike prices above $15.00.

Silver delivered against the futures contract must bear a serial number and identifying stamp of a refiner's officially listed brand. Delivery must be must be made from a warehouse or vault licensed or designated by the Exchange specifically for the storage of silver.

The first delivery day is the first business day of the delivery month; the last delivery day is the last business day of the delivery month.

The buyer or seller may exchange a futures position for a physical position of equal quantity by submitting a notice to the Exchange. EFPs may be used to either initiate or liquidate a futures position.

In fulfillment of each contract, the seller must deliver 5,000 troy ounces (±6%) of refined silver, assaying not less than .999 fineness, in cast bars weighing 1,000 or 1,100 troy ounces each and bearing a serial number and identifying stamp of a refiner approved and listed by the Exchange. A list of approved refiners and assayers is available from the Exchange upon request.