example /Cl are trading at 41.64 May16 is 41.5$ ITM Jun16 is 43$ ITM Jul16 is 43.5$ ITM I dont get it..the future is trading at 41.64 why is Jun16 43 and Jul16 43.5 are ITM? can somebody please explain
so are you saying that people are expecting that the future price of the commodity will be even more expensive than nearest expiration month?
At that point in time, those were the futures prices. There is a cost to store crude, so this is normal. The longer I have to hold crude, the more I need to sell my hedge for to make money. The most important thing to understand is that the options are not priced vs the spot prices, but vs the future for that option month.
so they have to hedge the cost of storage by increasing the price thats why it shown us different In The Money option? thanks alot!
It does not always work that way, but most of the time I expect that part of it. That measure stops back months from getting to high or it creates an arb. It does not stop back months from going lower.