Derivatives
This presentation is the property of its rightful owner.
Sponsored Links
1 / 10

Derivatives PowerPoint PPT Presentation


  • 62 Views
  • Uploaded on
  • Presentation posted in: General

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

Download Presentation

Derivatives

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Derivatives

Derivatives

Lecture 20


Futures options

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

  • Put Futures Option

    • Long Put = The right to short a futures contract

    • Short Put = The obligation to long a futures contract


Futures options1

Futures Options

Option Specifications

  • Futures Options = FO

  • No delivery occurs

  • Commodities are Settled in Cash

  • Financials might take delivery

  • One option = one futures contract

  • Expiration

    • Financial options

      • Same date as futures contract expiration

    • Commodity Options

      • Expire the month prior to the futures contract expiration


Futures options2

Futures Options

Pricing

  • FO prices are listed in “units”

  • Each “Unit” has a $ value

    Example (Corn FO)

  • Underlying asset = 5,000 bushels of corn

  • 1 unit = $6.25 (or 1/8 cents per bushel)

  • Dec300Call = 80

    • 80 x $6.25 = $500

  • The strike of 300 = $3.00 or 300 cents per bushel

  • CBOT lists details


Futures options3

Futures Options

Example (Soybean FO)

  • March soybean futures are selling for 575 cents per bushel

  • The underlying asset is one futures contract on 5,000 bushels of soybeans as listed on the CBOT

  • The value of one futures contract

    • 5000 x $5.75 = $28,750

  • The unit value is $50

    • Determined 5000 x .01 = $50

  • The futures option price is quoted in Units (which are cents per bushel)

  • But the total price is $50 x cents


Futures options4

Futures Options

Example (Soybean FO) - continued

  • Mar525P = 5 (total cost = $50 x 5 = $250)

  • Mar550C = 35.50($1,775)

  • Mar600C = 8.25($ 412.50)

  • BE on March550C = 550 + 35.50 = 585.50


Futures options5

Futures Options

Units

  • Vary depending on the underlying asset

  • Each asset has a unique relationship among

    • Asset price

    • Futures Contract specs

    • Option

      Basic Underlying Asset Categories

  • Commodity

  • Financial

  • Currency

  • others


Futures options6

Futures Options

Example - gold is quoted in $ per ounce

Example - Sugar is quoted in cents per pound

CBOT web site

Pricing – Same as regular options.

Black Scholes

Binomial


Futures options7

Futures Options

FO Margin

  • Determined by volatility and risk of loss

  • Futures Options use unique margin accounting

  • SPAN= Standard Portfolio ANalysis of Risk

    Futures Options Uses

    Same as futures w/ flexibility

    Floors, ceilings, spreads, etc

    Employs all Option strategies

    Arbitrage (lots of mispricing)


Futures options strategies

Futures Options Strategies

  • Class Brain storm


  • Login