Platinum and palladium are the most widely used of the six platinum group metals (PGM); the group also includes rhodium, ruthenium, osmium, and iridium. These metals posses unique chemical and physical qualities that make them vital industrial materials. They are especially valued for their catalytic functions, their conductivity, and their resistance to corrosion. They are essential in key manufacturing processes in the automobile, chemical, petroleum refining, pharmaceutical, and electronics industries. Platinum is also increasingly being used by the jewelry industry as designers are taking advantage of its durability and luster to create striking pieces.
Another characteristic of PGM demand is that most of it originates far from the sources of supply. U.S. industry consumes close to 40% of annual world production of platinum and palladium, but more than 90% of the world's supply originates South Africa and the Soviet Union (Canada is the only other significant producer).
Platinum and palladium are among the world's scarcest metals. Only about 4.5 million troy ounces of platinum and approximately 5 million ounces of palladium entered Western markets in1994. By comparison, worldwide mine production of gold totaled approximately 70 million ounces in 1994, while supplies of newly mined silver totaled approximately 440 million ounces.
Platinum's importance in world markets and responsiveness to world events make NYMEX Division platinum group metals futures and options and 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.
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 3% 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 price and the price of the offsetting transaction represents the realized profit or loss.
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 futures are among the primary risk management tools available, options on futures open a host of versatile, economical trading strategies.
Options on futures provide:
A limit on potential loss to the buyer.
The ability to hedge without foregoing the benefits of favorable price movements.
Futures: 50 troy ounces.
Options: One NYMEX Division platinum futures contract.
Futures and Options: 8:20A.M. to 2:30P.M., for the open outcry session.
Futures: Trading is conducted over 15 months beginning with the current month and the next two consecutive months before moving into the quarterly cycle of January, April, July, and October.
Options: Trading is conducted in the nearest three contiguous calendar contract months, plus the next two months of the quarterly cycle of January, April, July, and October.
Futures and Options: Dollars and cents per troy ounce. For example: $425.20 per troy ounce.
Minimum Price Fluctuation
Futures and Options: Price changes are in multiples of $0.10 per troy ounce, $5 per contract.
Maximum Daily Limit
Futures: $25 per troy ounce ($1,250 per contract). There is no maximum daily limit during the current delivery month and the three business days preceding it. If the settlement price reaches the maximum daily limit for two consecutive days in any of the outer months, the expanded daily limit schedule will go into effect. The maximum expanded daily limit is $50 per troy ounce ($2,500 per contract).
Options: No Price Limit
Last Trading Day
Futures: Trading terminates at the close of business on the fourth business day prior to the end of the delivery month.
Options: Second Friday of the month prior to the delivery month of the futures contract traded.
Exercise of Options
By a clearing member to the clearinghouse no later than 5:30P.M., or 45 minutes after the underlying futures settlement price is posted, whichever is later, on any day up to and including the option's expiration.
Options Strike Price Intervals
Strike prices are in increments of $10 per troy ounce. At least seven strike prices are listed at all times.