Futures and Futures Options Question

T

TheMaskedNewbie

I've been reading up on things as a beginner, and since metals futures are my chief interest, I thought I'd post this query over here, even though it could apply to any futures underlying. If a trader is setting up an intracommodity structure that has a portion containing both a short futures and a long call (American settlement) on the same contract month, and the long call is ITM at inception, does this make any difference whatsoever? To clarify, since the long call could potentially be exercised into a long futures position, which would subsequently closeout the short futures, would this structure be allowed to exist until/if the long call is exercised (as the rules of U.S. futures exchanges are concerned)?

Thanks in advance, folks:)
 
Most people sell their calls before expiration. But to answer, yes your exercised call option would close out your short position because why would you want to be long and short the same thing at the same time for the same month?
 
Thanks for the answer! To answer yours, it's only part of a larger structure, but I can't exactly give away the finer details for everybody to see. It does defy logic when considered in context by itself, I’ll certainly give you that :cool:
 
Quote from TheMaskedNewbie:

containing both a short futures and a long call (American settlement) on the same contract month,
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This is a synthetic put, fyi. You can accomplish the same risk, reward just being long a put of the same strike that you're considering for the call.
 
Quote from TheMaskedNewbie:

It would, but for the purposes of my method, condensing these two positions into a long put by itself just wouldn't be practical.
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Why? What's impractical about buying a put?
 
Quote from TheMaskedNewbie:

I can't exactly give away the finer details for everybody to see.
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don't make me laugh ... either you can do the put or you put the call on later because you allready had the future or you used the future to hedge the call at a later moment in time ... only so much possiblities, you won't be giving away big SECRETS by telling which one it actually is. Too many people thinking they invented boiling water lately at ET.
 
Quote from TheMaskedNewbie:

It would, but for the purposes of my method, condensing these two positions into a long put by itself just wouldn't be practical.
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Whether you condense or not results in the same outcome in terms of P&L. Test both.
 
Thing is, I just don't want to run into any unintentional closeouts when compounding the structures, so I limit myself to three derivative types per contract month at all times (either a combination of long futures, short puts and long calls OR a combination of short futures, short calls and long puts) using a minimum of two liquid contract months.

Since I've been going after a purely systematic position trading method, this is just one glitch out of many I've had to work around.:)
 
Quote from cvds16:

don't make me laugh ... either you can do the put or you put the call on later because you allready had the future or you used the future to hedge the call at a later moment in time ... only so much possiblities, you won't be giving away big SECRETS by telling which one it actually is. Too many people thinking they invented boiling water lately at ET.
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Exactly, which is why my quip was muted sarcasm.
 
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