Lean hog last day of trade versus settlement

heech · Sep 6, 2009

Hi,

Someone help me get my head around this very basic fact:

- last day of trade for lean hog V9 (future and option) is 10/14/09.

- settlement for lean hog V9 is 10/16/09.

So... what does that actually mean? Why is settlement *after* the last day of trade? What happens between 10/14 and 10/16?

traderTX · Sep 6, 2009

The settlement is based on a 2 day cash average. Here is the explanation from CME. Scroll to second page, rule 15203.A:
http://www.cmegroup.com/rulebook/CME/II/150/152/152.pdf

You can get the Lean Hog Index price off the CME site, or any newssource such as DJ Ag Wire.

Feeder cattle cash settle in a similar way, just an fyi, although it is the day immediately following the LTD.

heech · Sep 6, 2009

Quote from traderTX:

The settlement is based on a 2 day cash average. Here is the explanation from CME. Scroll to second page, rule 15203.A:
http://www.cmegroup.com/rulebook/CME/II/150/152/152.pdf

You can get the Lean Hog Index price off the CME site, or any newssource such as DJ Ag Wire.

Feeder cattle cash settle in a similar way, just an fyi, although it is the day immediately following the LTD.

Hmm... so how is option exercise determined? Based on price of the future on last day of trade, or is it the "cash average"? What if the two differ from each other significantly?

My real question is: how do I make sure I have a flat position before settlement? Or do I just need to make sure I close out all of my options before last day of trade?

gkishot · Sep 6, 2009

Quote from heech:

My real question is: how do I make sure I have a flat position before settlement? Or do I just need to make sure I close out all of my options before last day of trade?

Isn't that obvious: you need to close out your positions on any day the options are traded before settlement.

heech · Sep 8, 2009

Quote from gkishot:

Isn't that obvious: you need to close out your positions on any day the options are traded before settlement.

That's obviously one option (no pun intended). I wanted to know what the other options were, if I didn't want to pay the premium + extra commissions involved.

gkishot · Sep 8, 2009

Quote from heech:

That's obviously one option (no pun intended). I wanted to know what the other options were, if I didn't want to pay the premium + extra commissions involved.

You paid the premium when you opened the position, didn't you? Not when you close it out. As for commissions there is no way around them.