36 lines
2.6 KiB
Plaintext
36 lines
2.6 KiB
Plaintext
Chapter 34: Futures and Futures Options 663
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one tick in the money. You can give instructions to not have a futures option auto
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matically exercised if you wish.
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SERIAL OPTIONS
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Serial options are futures options whose expiration month is not the same as the expi
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ration month of their corresponding underlying futures.
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Example: Gold futures expire in February, April, June, August, October, and
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December. There are options that expire in those months as well. Notice that these
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expirations are spaced two months apart. Thus, when one gold contract expires, there
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are two months remaining until the next one expires.
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Most option traders recognize that the heaviest activity in an option series is in
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the nearest-term option. If the nearest-term option has two months remaining until
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expiration, it will not draw the trading interest that a shorter-term option would.
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Recognizing this fact, the exchange has decided that in addition to the regular
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expiration, there will be an option contract that expires in the nearest non-cycle
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rrwnth, that is, in the nearest month that does not have an actual gold future expir
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ing. So, if it were currently January 1, there might be gold options expiring in
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February, March, April, etc.
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Thus, the March option would be a serial option. There is no actual March gold
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future. Rather, the March options would be exercisable into Arpl futures.
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Serial options are exercisable into the nearest actual futures contract that exists
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after the options' expiration date. The number of serial option expirations depends
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on the underlying commodity. For example, gold will always have at least one serial
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option trading, per the definition highlighted in the example above. Certain futures
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whose expirations are three months apart (S&P 500 and all currency options) have
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serial options for the nearest two months that are not represented by an actual
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futures contract. Sugar, on the other hand, has only one serial option expiration per
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year - in December - to span the gap that exists between the normal October and
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March sugar futures expirations.
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Strategists trading in options that may have serial expirations should be careful
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in how they evaluate their strategies. For example, June S&P 500 futures options
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strategies can be planned with respect to where the underlying S&P 500 Index of
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stocks will be at expiration, for the June options are exercisable into the June futures,
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which settle at the same price as the Index itself on the last day of trading. However,
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if one is trading April S&P 500 options, he must plan his strategy on where the June
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futures contract is going to be trading at April expiration. The April options are exer- |