21 lines
1.3 KiB
Plaintext
21 lines
1.3 KiB
Plaintext
Futures Option Strategies for
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Futures Spreads
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A spread with futures is not the same as a spread with options, except that one item
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is bought while another is simultaneously sold. In this manner, one side of the spread
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hedges the risk of the other. This chapter describes futures spreading and offers ways
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to use options as an adjunct to those spreads.
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The concept of calendar spreading with futures options is covered in this chap
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ter as well. This is the one strategy that is very different when using futures options,
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as opposed to using stock or index options.
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FUTURES SPREADS
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Before getting into option strategies, it is necessary to define futures spreads and to
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examine some common futures spreading strategies.
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FUTURES PRICING DIFFERENTIALS
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It has already been shown that, for any paiticular physical commodity, there are, at
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any one time, several futures that expire in different months. Oil futures have month
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ly expirations; sugar futures expire in only five months of any one calendar year. The
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frequency of expiration months depends on which futures contract one is discussing.
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Futures on the same underlying commodity will trade at different prices. The
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differential is due to several factors, not just time, as is the case with stock options. A
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major factor is carrying costs - how much one would spend to buy and hold the phys-
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