What is a Futures Pack
A futures pack is a type of Eurodollar futures contract order that enables the purchase of a predefined number of futures contracts in four consecutive delivery months. Futures are a common type of financial contract that obligates the buyer to purchase an asset or a seller to sell an asset at a predetermined price at the specific time in the future.
In 2016, packs and bundles comprised approximately 20% of all Eurodollars futures contract transactions.
BREAKING DOWN Futures Pack
Futures packs are a group of Eurodollar futures contracts delivered to the investor over four consecutive months. As an example, the investor may buy a futures pack in June with delivery in September, October, November, and December.
Eurodollar refers to U.S. dollar-denominated deposits at foreign banks or the overseas branches of American banks. By being located outside the United States, Eurodollars escape regulation by the Federal Reserve Board.
Packs are futures contracts delivered over four consecutive months, essentially making them shorter-term bundles. The quote prices of futures packs and bundles have a basis of the average net change from the previous day’s settlement prices for the entire group of contracts in increments of one-quarter of a basis point. Futures packs give the investor the advantage of being able to transact several trades at a single price. Since the order is for multiple deliveries, it may cost less than entering each order separately. Also, it eliminates the possibility that a future order may go unfilled.
Siblings to the Future Pack
Similar to futures packs, futures bundles are another way of executing a strip trade. Bundles allow an investor to simultaneously purchase or sell a predefined number of futures contracts in each consecutive quarterly delivery month for a period of one or more years.
Using a single purchase of multiple futures contracts is known as buying futures strips. Traders use futures strips to lock in a specific price for their target timeframe. For example, a futures strip could be purchased to lock in a particular price for natural gas futures for a year with 12 monthly contracts connected into a strip.
Futures strips frequently trade in the energy market, and there are even exotic options on strips themselves. Traders use them to hedge and speculate on future price movements in oil, natural gas, or other commodity markets. A futures strip is also known as a calendar strip.
Futures strips, packs, and bundles are used in trading interest rates, agricultural goods, and energy futures.
A Short Primer on the Futures Market
Futures are a common type of financial contract which obligates the buyer to purchase an asset or a seller to sell an asset at a predetermined price at the specific time in the future. The asset represented in the contract can be the physical commodity or a financial instrument. Fulfillment of a futures contract can be a physical delivery of an asset or cash settlement. By using futures contracts, producers and suppliers attempt to avoid market volatility.
Known for having agricultural roots in the commodity markets the most well known future markets are the Chicago Mercantile Exchange (CME), the New York Mercantile Exchange (NYMEX), and the Chicago Board of Options Exchange (CBOT). The Commodity Futures Trading Commission registers and regulates future markets in the United States.
Futures can be used to hedge or speculate on the price movement of the underlying asset. Though associated with an agrarian past, futures markets involve the buying, selling, and hedging of financial products and future values of interest rates.
Future markets generally grow when the stock market outlook is uncertain, as sellers are looking to offset the volatility of the market by securing a purchase of their asset.