36 lines
1.9 KiB
Plaintext
36 lines
1.9 KiB
Plaintext
Chapter 34: Futures and Futures Options 681
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Note that this formula is merely another version of the one previously present
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ed in this chapter.
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In the example above, neither of the options in question had moved the 30-
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point limit, which applies to soybean options as well as to soybean futures. If they
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had, they would not be useable in the formula for implying the price of the future.
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Only options that are freely trading - not limit up or down - can be used in the above
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formula.
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A more complete look at soybean futures options on the day they opened and
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stayed down the limit would reveal that some of them are not tradeable either:
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Example: Continuing the above example, August soybeans are locked limit down 30
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cents on the day. The following list shows a wider array of option prices. Any option
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that is either up or down 30 cents on the day has also reached its trading limit, and
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therefore could not be used in the process necessary to discover the implied price of
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the August futures contract.
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last Sale Net Change
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Option Price for the Day
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August 550 call 71 - 30
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August 575 call 48 30
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August 600 call 31 - 26
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August 625 call 19 - 21
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August 650 call 11 - 15
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August 675 call 6 - 10
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August 550 put 4 + 3
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August 575 put 9 + 6
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August 600 put 18 + 11
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August 625 put -----------31 + 16
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August 650 put 48 + 22
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August 675 put 67 + 30
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The deeply in-the-money calls, August 550's and August 575's, and the deeply in
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the-money August 675 puts are all at the trading limit. All other options are freely trad
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ing and could be used for the above computation of the August future's implied price.
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One may ask how the market-makers are able to create markets for the options
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when the future is not freely trading. They are pricing the options off cash quotes.
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Knowing the cash quote, they can imply the price of the future (613 in this case), and
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they can then make option markets as well. |