Transcripts

A New Place To Trade For Gas & Housing Prices

SUSIE GHARIB: If you`re an individual investor trying to figure out which direction gasoline or housing prices are headed, a crystal ball has probably been a tool in your tool belt, until now. Some brand new futures contracts are letting small investors bet on both of those markets. As Diane Eastabrook reports, it`s a way to make money or protect assets.

DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Gasoline prices are up, gasoline prices are down. Now, new futures contracts pegged to pump prices around the country can help investors hedge against huge price swings. Gas-at-the-pump futures recently started trading at the Chicago Board Options Exchange futures division. The six contracts are pegged to gasoline prices nationally and in five regions around the country. Since these products are smaller than crude oil futures traded in New York, exchange officials in Chicago think they are better suited to investors and small and medium-sized gasoline users.

PATRICK FAY, MANAGING DIRECTOR, CBOE FUTURES EXCHANGE: If you are going to use it as a hedging tool primarily service station associations, fleet managers, for instance if you have a utility company, if you have a large fleet, you run a cement truck company, you can hedge your fuel costs with this product.

EASTABROOK: Across town, the Chicago Mercantile Exchange is taking on housing prices. Early next year the CME will begin trading futures contracts that track home prices in 10 U.S. cities. The exchange says the contracts could provide financial protection to mortgage companies, banks, or even homeowners who want to hedge against rising or falling housing prices. While contracts like these are a response to current market trends, experts say they aren`t necessarily fads.

KATHLEEN HAGERTY, FINANCE PROFESSOR, NORTHWESTERN UNIVERSITY: It makes the business environment a lot smoother if you can kind of smooth out these fluctuations and you see that in natural gas. We`ve seen it in other settings and it`s been very successful. It`s actually really a lot of the fluctuations in the economy have really been smoothed out.

EASTABROOK: HedgeStreet, a web-based futures exchange, says it is proof that investors are eager to trade on market trends. Speculators have been trading mini price-at-the pump and housing price futures on HedgeStreet for several months.

RUSSELL ANDERSSON, VICE PRESIDENT, HEDGESTREET: The folks that are trading on Hedgestreet today are trading out of intellectual curiosity firstly and secondly because they see it as an avenue to profit so you can make money.

EASTABROOK: Both the CBOE and HedgeStreet admit at this point their new futures contracts aren`t generating the kind of trading volume necessary to be good hedging tools, but they think that will change over time. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.

KANGAS: Tomorrow, an early new year`s resolution for your credit cards.