Options

1
Options
2
Terminology

• Option
• Option Buyer
• Option Seller
• Put Option
• Call Option
• Strike Price
• Underlying futures contract

3
Terminology

• Premium
• Exercise
• Expiration Date
• Broker
• Commission

4
What Options Are

• They are the right not Obligation to take a
  position in the market
• Put right to go short sell a contract
• Call right to go long buy a contract
• You are buying choice
• Exercise it
• Expire
• Sell it back (if it has value or is trading)

5
What Options Are

• Two types of traders
• Hedgers transferring risk
• Speculators willing to take risk for payment
  speculating that market will go other way
• Need speculators

6
What Options Are

• Where are options traded?
• Traded just like contracts in a pit adjacent
• Same specifications
• Weight
• Quality
• How is price determined?
• Just like contracts market buyers vs sellers

7
How much do they cost?

• Factors affecting Price Premium
• 1) Volatility of the futures market
• 2) Strike price compared to futures price
• 3) Time
• 4) Market expectations

8
How much do they cost?

• Factors affecting Price Premium
• 1) Volatility of the futures market
• 2) Strike price compared to futures price
• 3) Time
• 4) Market expectations

9
How much do they cost?

• Factors affecting Price Premium
• Prices are considered
• In the Money or Out of Money