Futures & Options for Dummies

January 23, 2007 08:06 AM

Futures & Options for Dummies

By Joe Duarte, MD.

Wiley Publishing Inc., April 2006

365 pages, $21.99

Reviewed by Todd Lofton

Like other books in the Dummies series, this one is very easy to read and the illustrations are entertaining. Dr. Duarte has written other books about the financial markets and he is obviously at home when describing the fundamentals of the U.S. economy.

The chapters on the commodity market present solid overviews and outline the important fundamental considerations in each market as do chapters on technical analysis. Still, pretty good stuff.

After that, it’s downhill. The material presented on the mechanics of futures and options is laced with errors and misinformation. It’s almost as if a different writer sat down and took over. Some of the mistakes are relatively minor, like referring to original margin as collateral, or to the difference between the cash and futures price of a specific commodity, the basis, as the price margin. Others are not. It is a serious disservice to tell a reader that: trailing stop-loss orders move of their own volition when prices change; a contingent order may not be filled if the broker considers the order too difficult; Treasury note futures prices rise when ambient interest rates go up; and a one-point move in the Eurodollar futures contract is worth $2,500.

The text refers more than once to independent, “over-the-counter stock option dealers.” Option dealers have been gone since 1973. On page 57, the text deems the writing of covered calls and uncovered puts “similar strategies.” They are not. On page 35, swaps and spreads are identified as interest-rate futures. In several places, complicated subjects are introduced and immediately abandoned without adequate explanations as is the case with his description of straddles and strangles.

Finally, options on futures, which are very active international markets, are virtually unmentioned.

I have always considered a “reference for the rest of us” to be an excellent concept and the Dummies books have always struck me as being well done, filling an important niche in the market literature. I regret to say that Futures & Options for Dummies does not fit the mold.

Todd Lofton is a past member and floor trader on the Chicago Board of Trade, author of Getting Started in Futures, (John Wiley, 1986), and a founding publisher and editor of Commodities, now Futures Magazine.

About the Author