What does Futures Equivalent mean?
Futures equivalent is a term used to make comparison of value between futures contracts and options contracts on futures for the underlying asset. For example, commodity futures trading and commodity futures options trading both deal with the future price of underlying commodities. Futures equivalent matches the two based on the risk factor of the option, known as delta.
Futures Knowledge Explains Futures Equivalent
The futures-equivalent of an option position is the number of options multiplied by the previous day's risk factor or delta for the same option series. For example, twenty deep out-of-money options with a delta of 0.30 is six futures-equivalent contracts. The delta or risk factor is how much an option contract will change in value if the underlying futures contract changes by one unit.