45 lines
1.8 KiB
Plaintext
45 lines
1.8 KiB
Plaintext
Chapter 34: Futures and Futures Options 675
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In reality, where deeply in-the-money or longer-term options are involved, this
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simple formula is not correct. However, for most options on a particular nearby
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futures contract, it will suffice quite well. Examine the quotes in today's newspaper
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to verify that this is a true statement.
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A subcase of this observation is that when the futures contract is exactly at the
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striking price, the call and put with that strike will both trade at the same price. Note
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that in the above formula, if one sets the futures price equal to the striking price, the
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last two terms cancel out and one is left with: Call price = Put price.
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One final observation before getting into strategies: For a put and a call with the
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same strike,
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Net change call - Net change put = Net change futures
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This is a true statement for stock and index options as well, and is a useful rule
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to remember. Since futures options bid and offer quotes are not always disseminat
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ed by quote vendors, one is forced to use last sales. If the last sales don't conform to
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the rule above, then at least one of the last sales is probably not representative of the
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true market in the options.
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Example: April crude oil is up 50 cents to 19.24. A trader punches up the following
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quotes on his machine and sees the following prices:
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Option
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April 19 call:
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April 19 put:
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Last Sale
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0.55
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0.31
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These options conform to the abo~rule:
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Net change futures = Net change call - Net change put
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= +0.20 - (-0.30)
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= +0.50
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Net Change
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+ 0.20
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- 0.30
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The net changes of the call and put indicate the April future should be up 50
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cents, which it is.
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Suppose that one also priced a less active option on his quote machine and saw
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the following:
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Option
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April 17 call:
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April 17 put:
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Last Sale
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2.10
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0.04
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Net Change
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+ 0.30
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- 0.02 |