Question on CL Options

J

jtTrader

This is probably a dumb question.

I normally trade the financial e-mini products, but I would like to trade Oil (CL). I notice that the CL options expire 5 days before the futures contract. How can this be? If one wishes to use options to hedge a futures contract, how can this be done for CL?

To explain better, this scenario:

Long CL Sept 11 at 99.40
Buy CL Sept 11 put at 99
Sell CL Sept 11 call at 100.50

This works fine if the expiration is the same day. How can options be used to protect a futures position if the expiration day of the future and futures options expire on different days?

Thanks for the help understanding this!
 
CL futures volume rolls over to the next contract when the options expire. You have to close out your futures position if you need hedge when your options expire. You can always protect Sep. CL with Oct. options, but then you are taking on spread risk between Sep. & Oct. CL futures. This is just the way it is
 
They intentionally have the options expire a few days early because CL is physically settled. Extremely few of the CL traders would actually want to take delivery, so they have the options expire into the futures contract then you have a few days to close out your position.

If some trader makes a mistake with Apple options and ends up short or long shares after options expiration it is not that big of a deal, but if someone makes a mistake and ends up having to take delivery of 1000 barrels of oil when they are not prepared to do so it would be a very big deal.

I am not sure how you trade but your example is just a bull call vertical spread, so no need for the futures. If you want to have options on and trade the futures contracts back and forth, then you will need to close out everything on options expiration and switch to the next month.
 
Maybe I should ask the question differently. Why don't the options and futures expiration match up? There must be a reason for why they are different.

Thanks again
 
Quote from jtTrader:

Opt789, I replied before I read your post. I see, the reason is the delivery issue.
More...
Yep, same for natural gas, corn, wheat, soybeans, etc.
 
Quote from opt789:

They intentionally have the options expire a few days early because CL is physically settled. Extremely few of the CL traders would actually want to take delivery, so they have the options expire into the futures contract then you have a few days to close out your position.

If some trader makes a mistake with Apple options and ends up short or long shares after options expiration it is not that big of a deal, but if someone makes a mistake and ends up having to take delivery of 1000 barrels of oil when they are not prepared to do so it would be a very big deal.

I am not sure how you trade but your example is just a bull call vertical spread, so no need for the futures. If you want to have options on and trade the futures contracts back and forth, then you will need to close out everything on options expiration and switch to the next month.
More...


Some of the main retail brokers on the take delivery commodities (IB and TOS I know for sure), Tell you to close them out before options expiration. If you don't close them out, they will do it for you.
 
TI on ICE is financially settled, TI on Nymex/Globex is physically delivered at Cushing when the futures expire.

Brent Gasoil and TI options all settle into the futures several days before the futures expire. Option expiry is 7.30pm for the crudes and 4.30pm for the GO, the longs then have 1 hour after expiry time to notify the clearing house if they wish to excercise against a randomly selected short.

Like the previous poster said, i believe the delivery issue is the reason for the different expiry. But if you are long underlying and long a put, then you may have to excercise your put into a short futures position several days before futures expiry. You then end up long underlying and short futures so you are still hedged, just not with an option!
 
You must log in or register to reply here.
Back
Top