Copper Futures and Copper Options

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Copper was first worked about 7,000 years ago. It's softness, color, and presence in nature enabled it to be easily mined and fashioned into primitive utensils, tools, and weapons. Five thousand years ago, man learned to alloy copper with tin, producing bronze and giving rise to a new age. Thus copper was established as a commodity with commercial value.

In the early 20^th century, new mining and smelting techniques were developed in the United States which made it possible to process lower-grade ores, resulting in a dramatic global expansion of the copper market.

Exchange-Based Copper 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 including trading volume, open interest, and warehouse stocks in an accurate, reliable, and timely fashion.

The Exchange maintains absolute neutrality toward the market as its rules apply not only to both sides of a transaction, but also to all who trade its contracts, from the smallest individual investor to the largest multinational corporation. The sophisticated, intricate system of safeguards, evenly applied, gives market participants an assurance against manipulation and default that is absent from over-the-counter markets and many foreign exchanges.

Why Trade COMEX Division Copper Futures and 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 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 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 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 most well-respected 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. The New York Mercantile Exchange is a not-for-profit institution that provides a self-regulatory infrastructure that allows market participants to do business in a fair and orderly way.

Futures

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 metals 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 and the price of the offsetting transaction represents the realized profit or loss.

Trading in COMEX Division high-grade copper futures is conducted for delivery during the current calendar month and the next 23 consecutive months.

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.

Options on futures provides:

• A limit on the buyers 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 options alone, or in combination with futures 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 futures. 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. In order to protect the integrity of the market, the Exchange establishes margins at sufficient levels to adequately guard against the risks associated with changing market conditions. The Exchange also requires that margin payments from customers are posted with the clearing member in either cash or U.S. government obligations with less than 10 years to maturity and, in turn, that the clearing member place these funds in a segregated depository.

As prices move, additional margin is collected from those participants who have experienced an adverse movement and paid to those with a favorable position.

Margin requirements are subject to change, please contact the exchange or your broker for current information.

High Grade Copper Futures and Options
Contract Specifications

Trading Unit

Futures: 25,000 pounds

Options: one COMEX Division high-grade copper futures contract

Trading Hours

Futures and Options: 8:10 A.M. to 2:00 P.M. for the open outcry session.

Trading Months

Futures: Trading is conducted for delivery during the current calendar month and the next 23 consecutive calendar months.

Options: 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

Futures and Options: cents per pound

Minimum Price Fluctuation

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

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

Futures: Terminates at the close of business of the third last business day of the maturing delivery month.

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 optionis 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 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.

Delivery Period

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.

Exchange of Futures for, or in Connection with, Physicals (EFP)

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 futures positions.

Margin Requirements

Margins are required for open futures and short options positions. The margin requirement for an options purchaser will never exceed the premium paid.

Trading Symbols

Futures: HG
Options: HX