SpreadProfessor Clients - Thanks !

i960 said:
The other day I learned that ICE offers options on KC spreads - meaning the underlying is the spread itself (2 different ones). Nothing mind blowing about that but it does seem like a funny derivative rabbit hole to me - its like a derivative on a derivative of which you can then take to another level with option spreads.

Anyway, does CME offer similar products?
More...
I have never personally traded them pre-packaged like that ( I always legged into options on futures spread combinations or options on financial swaps / physical swaps spreads ) - but I have heard of them being offered by various exchanges.

Any useful information from someone more adroit on the topic would be welcome !
 
How does one leg into options on a spread? Not the mechanics of it, but maybe better said: how does one even construct such a position if the underlying's options have strikes dictated based directly on the underlying's price? Obviously both (to keep it simple) components of the spread could go up or down the same amount keeping the spread steady but totally throwing off any options based on the underlying.

The ones I'm talking about are literally options on the spread price between front and back months:

https://www.theice.com/products/6473168/Coffee-C-Calendar-Spread-Options

CALL OPTION
Buyer of an CSO Call Option has the right to establish a spread position of long the first month in the spread pair and short the second month in the pair, at a price difference equal to the Strike Price of the CSO contract.
PUT OPTION
Buyer of an CSO Put Option has the right to establish a spread position of short the first month in the spread pair and long the second month in the pair, at a price difference equal to the Strike Price of the CSO contract.
STRIKE PRICE
The Strike Price of an CSO contract can be positive (indicating the price of the front month is above the price of the back month in the pair), negative (indicating the price of the front month is below the price of the back month in the pair) or zero (indicating the prices of the two months in the pair are the same).

They look like this:

kc_spread_opt.png
 
Yes, CME has calendar spread options on several products. N/x soybean and n/z and z/z corn are ones I watch that are fairly popular
 
IMHO, options on futures spreads make the most sense for the most volatile of combinations. You'd be better served just doing the futures spreads for many ( but certainly not all ) futures spread combinations since they are typically very cheap to margin, and slippage on the options should be taken into account.
 
I've responded to a few threads about fear of loss. There's no sense in suppressing or ignoring the emotion. No matter what trading system you are using, you are going to have to let it "perform" in the market trading range and that of course means a drawdown. Hopefully, you've defined your Pain threshold with a stop-loss.

Trading smaller size or switching instruments to something more suitable to your account capitalization is an obvious remedy.

As an aside, most clients come to me with a historical background of having spent 90% of their energy devising the perfect trade entry, and unfortunately position management is treated as an afterthought. Somehow there is this myth out there that a perfect entry requires no trade management. But alas, "perfect" trade entries are not frequent visitors.
 
I have a few Skype conferences scheduled this week in order to talk about the possibility of filling 2 open training slots.
 
As a postscript to the post above citing a Bloomberg article re: Glencore profits and commodities prices, on August 19 Bloomberg reported that Glencore first-half profit dropped 56% as raw material prices slid. Again, commercials whose business models require them to hold physical inventory are in a challenging environment for sure.
 
You must log in or register to reply here.
Back
Top