37 lines
2.6 KiB
Plaintext
37 lines
2.6 KiB
Plaintext
Chapter 35: Futures Option Strategies for Futures Spreads 705
|
||
there is a major difference between the futures option calendar spread and the stock
|
||
option calendar spread. That difference is that a calendar spread using futures
|
||
options involves two separate underlying instruments, while a calendar spread using
|
||
stock options does not. When one buys the May soybean 600 call and sells the March
|
||
soybean 600 call, he is buying a call on the May soybean futures contract and selling
|
||
a call on the March soybean futures contract. Thus, the futures option calendar
|
||
spread involves two separate, but related, underlying futures contracts. However, if
|
||
one buys the IBM May 100 call and sells the IBM March 100 call, both calls are on
|
||
the same underlying instrument, IBM. This is a major difference between the two
|
||
strategies, although both are called "calendar spreads."
|
||
To the stock option trader who is used to visualizing calendar spreads, the
|
||
futures option variety may confound him at first. For example, a stock option trader
|
||
may conclude that if he can buy a four-month call for 5 points and sell a two-month
|
||
call for 2 points, he has a good calendar spread possibility. Such an analysis is mean
|
||
ingless with futures options. If one can buy the May soybean 600 call for 5 and sell
|
||
the March soybean 600 call for 3, is that a good spread or not? It's impossible to tell,
|
||
unless you know the relationship between May and March soybean futures contracts.
|
||
Thus, in order to analyze the futures option calendar spread, one must not only ana
|
||
lyze the options' relationship, but the two futures contracts' relationship as well.
|
||
Simply stated, when one establishes a futures option calendar spread, he is not only
|
||
spreading time, as he does with stock options, he is also spreading the relationship
|
||
between the underlying futures.
|
||
Example: A trader notices that near-term options in soybeans are relatively more
|
||
expensive than longer-term options. He thinks a calendar spread might make sense,
|
||
as he can sell the overpriced near-term calls and buy the relatively cheaper longer
|
||
term calls. This is a good situation, considering the theoretical value of the options
|
||
involved. He establishes the spread at the following prices:
|
||
Soybean Trading
|
||
Contract Initial Price Position
|
||
March 600 call 14 Sell 1
|
||
May 600 call 21 Buy 1
|
||
March future 594 none
|
||
May future 598 none
|
||
The May/March 600 call calendar spread is established for 7 points debit.
|
||
March expiration is two months away. At the current time, the May futures are trad
|
||
ing at a 4-point premium to March futures. The spreader figures that if March |