Options on Futures: doubt on terminology

W

williamblake72

Hi all,

I found an analysis where it was suggested to "buy a March Cocoa 4300/4500 bull call spread at 40 with an objective of 175. Risk the entire spread premium on the trade."

What this exactly means? I have some doubts:

- March Cocoa: March refers to A) the month of option expiring or B) the month of the future reference? In other words: they are referring to the option expiring on 1st Mar with Future May or to the option expiring on 2nd Feb with Future March?
- at 40 with an objective of 175: it means that I should be able to buy the bull call at a price of 40 and i can sell it when the price of the bull call reaches 175, correct?
- risk the entire spread premium on the trade: it means that i don't have a sort of "stop loss" when the price of the bull reaches a level, but i should stay until expiring correct?

Thanks so much
 
williamblake72 said:
Hi all,

I found an analysis where it was suggested to "buy a March Cocoa 4300/4500 bull call spread at 40 with an objective of 175. Risk the entire spread premium on the trade."

What this exactly means? I have some doubts:

- March Cocoa: March refers to A) the month of option expiring or B) the month of the future reference? In other words: they are referring to the option expiring on 1st Mar with Future May or to the option expiring on 2nd Feb with Future March?
- at 40 with an objective of 175: it means that I should be able to buy the bull call at a price of 40 and i can sell it when the price of the bull call reaches 175, correct?
- risk the entire spread premium on the trade: it means that i don't have a sort of "stop loss" when the price of the bull reaches a level, but i should stay until expiring correct?

Thanks so much
More...
For an analysis, please provide the Bid/Ask (or Last) prices for the said Call strikes 4300 and 4500
or give a weblink where this info can be found. It seems this trades only somewhere in Europe, as indicated in this old news release: https://investor.cmegroup.com/news-...oup-announces-launch-cocoa-options-cme-europe
But many of the links therein no longer work.

At ICE it's listed too, but couldn't find any market data as the button for market data is "grayed" (ie. w/o a function):
https://www.ice.com/products/Futures-Options/Agriculture/Cocoa
CC Cocoa Options Cocoa IFUS
CC1 Cocoa 1-Month Calendar Spread Option Cocoa IFUS
CC2 Cocoa 2-Month Calendar Spread Option Cocoa IFUS
C London Cocoa Options Cocoa IFLX
C1 London Cocoa 1-Month Calendar Spread Option Cocoa IFLX
C2 London Cocoa 2-Month Calendar Spread Option Cocoa IFLX

I could set up this hypthetical trade which costs (and risks) 40 like in your example and gives max 160 (not 175 as in your example):
https://optioncreator.com/st7daqr
This trade looks good as risk:reward is upto 1:4.
Cocoa_BullCallSpread.png
 
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It's not possible to make more than 160 with Bull Call Spread with a strike difference of 200 (= 4500 - 4300) and a NetDebit of 40, b/c of these formula for BullCallSpread:
CostBase = NetDebit = PremiumOfLongCall - PremiumOfShortCall = 40 (in above example 210 - 170)
MaxProfit = StrikeDifference - NetDebit = (4500 - 4300) - 40 = 160
MaxLoss = NetDebit = 40

Of course all amounts have to be multiplied by the multiplier for this product (usually 100).
 
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- at 40 with an objective of 175: it means that I should be able to buy the bull call at a price of 40 and i can sell it when the price of the bull call reaches 175, correct
 
2rosy said:
- at 40 with an objective of 175: it means that I should be able to buy the bull call at a price of 40 and i can sell it when the price of the bull call reaches 175, correct
More...

bad wording.
1. You buy “for” you sell “at.”
2. Target pnl can’t be 175 as spread is 200 and cost is 40 (160)

a clearer statement would have been:
“buy a March Cocoa 4300/4500 bull call spread for 40 with an target price of175”
 
Quanto said:
For an analysis, please provide the Bid/Ask (or Last) prices for the said Call strikes 4300 and 4500
or give a weblink where this info can be found. It seems this trades only somewhere in Europe, as indicated in this old news release: https://investor.cmegroup.com/news-...oup-announces-launch-cocoa-options-cme-europe
But many of the links therein no longer work.

At ICE it's listed too, but couldn't find any market data as the button for market data is "grayed" (ie. w/o a function):
https://www.ice.com/products/Futures-Options/Agriculture/Cocoa
CC Cocoa Options Cocoa IFUS
CC1 Cocoa 1-Month Calendar Spread Option Cocoa IFUS
CC2 Cocoa 2-Month Calendar Spread Option Cocoa IFUS
C London Cocoa Options Cocoa IFLX
C1 London Cocoa 1-Month Calendar Spread Option Cocoa IFLX
C2 London Cocoa 2-Month Calendar Spread Option Cocoa IFLX

I could set up this hypthetical trade which costs (and risks) 40 like in your example and gives max 160 (not 175 as in your example):
https://optioncreator.com/st7daqr
This trade looks good as risk:reward is upto 1:4.
View attachment 331910
More...

Hello, more than a "operational question", my question is more about terminology. For instance, if March is the recommendation do they refer to the expiration of the option (Mar expiry of options on Cocoa futures, which refers to the May future CCK2024) or do they refer to the expiration of the future (and in this case the expiration of the option should be February, which refers to Mar future CCH2024)?
 
williamblake72 said:
Hello, more than a "operational question", my question is more about terminology. For instance, if March is the recommendation do they refer to the expiration of the option (Mar expiry of options on Cocoa futures, which refers to the May future CCK2024) or do they refer to the expiration of the future (and in this case the expiration of the option should be February, which refers to Mar future CCH2024)?
More...
i don't trade cocoa so i don't know. you can find out the specs on cme website.

it refers to futures expiration date, cjh4
 
williamblake72 said:
Hello, more than a "operational question", my question is more about terminology. For instance, if March is the recommendation do they refer to the expiration of the option (Mar expiry of options on Cocoa futures, which refers to the May future CCK2024) or do they refer to the expiration of the future (and in this case the expiration of the option should be February, which refers to Mar future CCH2024)?
More...
What is your source? Just post the link for research by the crowd here.
Best is to contact your source and ask them what they mean. Without original data we only can guess what they might have meant.
 
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