36 lines
2.2 KiB
Plaintext
36 lines
2.2 KiB
Plaintext
674 Part V: Index Options and Futures
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FUTURES OPTION TRADING STRATEGIES
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The strategies described here are those that are unique to futures option trading.
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Although there may be some general relationships to stock and index option strate
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gies, for the most part these strategies apply only to futures options. It will also be
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shown - in the backspread and ratio spread examples - that one can compute the
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profitability of an option spread in the same manner, no matter what the underlying
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instrument is (stocks, futures, etc.) by breaking everything down into "points" and not
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"dollars."
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Before getting into specific strategies, it might prove useful to observe some
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relationships about futures options and their price relationships to each other and to
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the futures contract itself. Carrying cost and dividends are built into the price of stock
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and index options, because the underlying instrument pays dividends and one has to
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pay cash to buy or sell the stock. Such is not the case with futures. The "investment"
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required to buy a futures contract is not initially a cash outlay. Note that the cost of
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carry associated with futures generally refers to the carrying cost of owning the cash
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commodity itself. That carrying cost has no bearing on the price of a futures option
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other than to determine the futures price itself. Moreover, the future has no divi
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dends or similar payout. This is even true for something like U.S. Treasury bond
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options, because the interest rate payout of the cash bond is built into the futures
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price; thus, the option, which is based on the futures price and not directly on the
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cash price, does not have to allow for carry, since the future itself has no initial car
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rying costs associated with it.
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Simplistically, it can be stated that:
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Futures Call = Futures Put + Futures Price - Strike Price
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Example: April crude oil futures closed at 18.74 ($18.74 per barrel). The following
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prices exist:
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Strike April Call April Put Put + Futures
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Price Price Price - Strike
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17 1.80 0.06 1.80
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18 0.96 0.22 0.96
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19 0.35 0.61 \ 0.35
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20 0.10 1.36 0.10
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Note that, at every strike, the above formula is true (Call = Put + Futures -
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Strike). These are not theoretical prices; they were taken from actual settlement
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prices on a particular trading day. |