Hi guys I'm completely new to Options Have attached Fridays Option tables from ABN AMRO. Soybean Meal Option Puts - Page 2 in attachment. Would "Settle" tend to be a rough guide to what the premium is going to cost ?? eg $8.30 premium to buy a $320 PUT ? And is that $8.30 per ton ? Obviously then you have your commission on top. We buy soymeal and i am looking to buy out the money PUTS as insurance against falling prices when we purchase our physical Any help much appreciated
Settlement was the closing price on that date. It will change on Monday and you might not be able to trade at that price even if the futures price does not change. You won't know until you see the current markets and enter an order. If you have a business where you need to buy soymeal in the future and want to lock in a price today, you have to buy deltas today. That would mean either buying calls, selling puts or buying the future to hedge future prices today. If you are a hedger and have will produce soymeal for sale in the future and want to lock in a forward price or hedge against falling prices, you need to sell deltas- sell calls, buy puts or sell futures. I don't recommend you do this on your own. It is worth talking to your FCMs trading desk and come up with a plan to hedge and unwind. 1245
I thought it best to try and put it in better detail what it is that I will be trying to do in future: I am exploring introducing option strategies into my work. Basically I sell physical ag commodities and am looking at offering customers the option of "buying insurance" when the buy their physical - This would entail in most cases buying Puts. By the way - I have a former background in futures but options are fairly new to me – just have a basic understanding. Easy example of what I want to do: TODAY I sell 1000 Metric Tonnes of physical soymeal per month (a total of 7000 MT) for collection in or around the last day of each month - June through December 2016 to Company X. We have already shipped the soymeal from South America and put into our store and the customer collects it from there. If the price today is £300 per metric ton ($432.75 at today’s FX 1.4425) so the customer is paying £300,000 ($432,750) per month for their 1000 MT. Company X want to buy puts to cover their exposure as they feel there is a good chance prices will fall. I would look at buying puts in every CBOT contract month that covers the period of the contract so e.g. July 16 to Jan 17 to cover 1000 MT in each month. Just taking one month as an example – against the October futures which currently trades $337 What would be the cost of options to cover approximately 1000 Metric tonnes (1100 Short tonnes approx.) for an out the money put at strike Price $320? I really want the PUT coverage to be that the customer get paid out an approximate equivalent amount to what they have lost on their physical purchase. So if the market in October falls to $310 I would want enough puts on to compensate for a $10 loss x 1000 MT = £10,000 ($14,425) What would be the current market cost of the premium of buying a Put at $10/$20/$30/$40/$50 OTM e.g. $320 310 300 290 280 etc. – just looking for an example so any contract month will do preferably Oct, Dec, Jan so I am looking a bit further out? Is there enough volume traded on the further out months? And do you know the sort of total commission charged on each Option for buying a put and the cost for offsetting/exercising/letting option expire? Looking at the CBOT options tables would "Settle" tend to be a rough guide to what the premium is going to cost?? e.g. $9.65 premium to buy a $320 PUT in August contract? And is that $8.30 per ton ? Sorry for so many questions – just trying to build an understanding before pressing ahead! Thanks !
Hi 1245 Thanks for your reply which is much appreciated. I think almost everything has now been clarified. Can you just clarify if I bought the 10 Puts @ $320 costing me $8000 how much would I be in profit if we were trading $310 ? Thanks
You may find this helpful as a starting point: http://www.cmegroup.com/trading/agr...th-grain-and-oilseed-futures-and-options.html The CME website offers a wealth of additional educational & trading materials, tutorial videos etc. But from your questions it seems that you'd need to explore the general options tuition stuff as well, and as 1245 advised, speak to a FCM/broker who specializes in ag hedging. There's a ET member, Brighton, who trades ag options extensively I believe. Maybe he can recommend a firm. And perhaps try posting a few of your questions in the Ags forum.