Effect of Futures Contango decay on Options?

Discussion in 'Options' started by larryface, Dec 28, 2012.

  1. larryface


    I'm new to options trading and would like to know if there's a good strategy to deal with the Contango decay which affects the probability of an Option's Moneyness on expiry.

    Any Bull Spread I enter will fight an uphill battle against the decaying Contango. But a Bear Spread may also have problems since the Futures market are usually in Contango in an UPTREND.

    Is there a way to combine the benefits of both without the disadvantages? Thanks.
  2. I realize you are new here, but are you familiar with a poster by the name of atticus?
    Perhaps a blood relative?
    I assume you are into commodity trading?
  3. LOL!
    But which twin got the good genes and which one got the left overs?
  4. The contango will just be reflected in the option price so I do not think it has any major implication for options.

    The underlying future month will be higher than the current month quote, and the option will just be quoted against the future month. Everything will be in terms of the price of the future month. The relationship to the current month price (contango or backwardation) is not very significant, unless one assumes that the contango is artificial or temporary.
  5. You're running 1,200 deltas in a FO calendar. You buy(sell) the futures calendar 12-lot to cover the risk on the switch.
  6. larryface


    You could elaborate with an example? Thanks.