Derivatives. Lecture 20. Futures Options. Overview A Futures Contract on an Option The underlying asset is not a stock The underlying asset is a futures contract Call Futures Option Long Call = The right to long a futures contract Short Call = The obligation to short a futures contract
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Example (Corn FO)
Example (Soybean FO)
Example (Soybean FO) - continued
Basic Underlying Asset Categories
Example - gold is quoted in $ per ounce
Example - Sugar is quoted in cents per pound
CBOT web site
Pricing – Same as regular options.
Futures Options Uses
Same as futures w/ flexibility
Floors, ceilings, spreads, etc
Employs all Option strategies
Arbitrage (lots of mispricing)