Readings Many trading partners often ask if a platform's precious metals products are futures and not spot, what futures are, and today we will talk in detail.
Futures options were another futures revolution in the 1980s, following the financial futures of the 1970s. On October 1, 1984, the Chicago Futures Exchange successfully applied the options trading method to the buying and selling of government long-term Treasury futures contracts, giving rise to the futures option. Commodity futures provide a tool for futures traders to avoid risk, whereas spot futures provide a tool for futures traders to avoid risk.
A futures option is a trade in the right to buy or sell futures contracts, including commodity futures and financial options. Generally speaking, an option usually refers to a spot option, whereas a futures option refers to the option column of a futures contract, a futures option contract refers to a futures contract to buy or sell a specific quantity of a specific commodity or asset at the agreed price on or before the expiration date. The basis of a futures option is a commodity futures contract, the futures contract is not a commodity represented by the futures contract, but the futures contract itself.
If executed on a futures call option, the holder obtains an additional multi-head position in the futures contract plus an amount equal to the current futures price minus the execution price in cash.
For example, if you bought a call option with a strike price of $80 for $10 and assuming a market price of $100 at the expiration date, your gain is $20 and the profit is $20 - the future value of the coupon; assuming a market price of $60 at the expiration date, then you can choose not to exercise the option, then your gain is 0 and the profit is 0 - the future value of the coupon.
If executed on a futures call option, the holder will receive an additional amount in addition to the short position in the futures contract equal to the execution price minus the cash price of the current futures contract.
If you buy a bear option at a strike price of $80 with $10 and assume the market price at the expiration date is $100, you can choose not to exercise the option, the gain is 0, the profit is 0 - the future value of the buffer; assume the market price at the expiration date is $60 and the gain is $20, the profit is $20 - the future value of the buffer.
In view of this, futures options rarely deliver futures contracts at the time of execution, but only the settlement amount caused by the difference between the futures contract price and the agreed price of the option that is charged by the parties to the futures option transaction.
Compared to spot options, futures options have the following advantages:
Compared to spot options, futures options also have significant disadvantages, the biggest disadvantage being that because of the limited variety of commodities traded on the exchange, the terms of the deal cannot be freely determined in terms of price, term, etc. In terms of advantages, if the trader makes hedging transactions or investment transactions in the futures market, the use of futures options trading can increase the success rate of hedging the spot market portfolio while reducing the risk of the futures market, and can also increase profitability opportunities.