Lean hog last day of trade versus settlement

Discussion in 'Commodity Futures' started by heech, Sep 6, 2009.

  1. heech



    Someone help me get my head around this very basic fact:

    - last day of trade for lean hog V9 (future and option) is 10/14/09.

    - settlement for lean hog V9 is 10/16/09.

    So... what does that actually mean? Why is settlement *after* the last day of trade? What happens between 10/14 and 10/16?
  2. The settlement is based on a 2 day cash average. Here is the explanation from CME. Scroll to second page, rule 15203.A:

    You can get the Lean Hog Index price off the CME site, or any newssource such as DJ Ag Wire.

    Feeder cattle cash settle in a similar way, just an fyi, although it is the day immediately following the LTD.
  3. heech


    Hmm... so how is option exercise determined? Based on price of the future on last day of trade, or is it the "cash average"? What if the two differ from each other significantly?

    My real question is: how do I make sure I have a flat position before settlement? Or do I just need to make sure I close out all of my options before last day of trade?
  4. gkishot


    Isn't that obvious: you need to close out your positions on any day the options are traded before settlement.
  5. heech


    That's obviously one option (no pun intended). I wanted to know what the other options were, if I didn't want to pay the premium + extra commissions involved.
  6. gkishot


    You paid the premium when you opened the position, didn't you? Not when you close it out. As for commissions there is no way around them.