The most popular Live Cattle option spread strategies from 2017 through September 2020 (87 percent of total option spread volume) include: Put Verticals, Call Verticals, Risk Reversals, Put Spread vs. The rise of option analytical tools such as QuikStrike have allowed customers to build, view, and test option spreads making it easier for new traders to understand option spreads.Īsked why his customers like to trade spread options, George Haralambakis, founder of Bakis Commodities ‒ a Chicago-based livestock derivatives broker and advisory firm states, “Buying an option outright is viable and cost-effective risk management strategy but an option spread can be less expensive and still offer specific protection.” Additionally, for the cost-conscious risk manager, options strategies can effectively reduce margin requirements through creation of a defined risk profile. Depending on volatility levels and time of year, certain strategies may become more popular to optimize risk/reward profiles and mitigate risk. Who uses option spread strategies?Ī broad spectrum of customers use agricultural option spreads. Utilized in the proper manner, option spread strategies can provide market participants added flexibility, lower cost, and more specified risk management characteristics when compared to outright strategies. While an outright represents an option that is bought or sold individually without the simultaneous placement of an offsetting hedge, an option spread strategy represents an options position that involves buying or selling multiple strikes and/or expirations on the same commodity. To make executing these strategies easier, Globex has the ability to enter options spreads as one order through the Request for Quote (RFQ) functionality. However, this growth shows option spread strategies have become an increasingly popular tool in the Livestock option trader’s toolkit. This is slightly lower than the 50 percent observed in grains. Since options were first offered electronically in 2012 on CME Group’s electronic platform, CME Globex, option spread strategy volumes have grown over 86 percent and account for 45 percent of total executed options volume today. In Part 2 of this paper, we will focus on exploring the trends driving the utilization of options strategies in CME’s Livestock options complex and attempt to compare and contrast the most utilized strategies in the Live Cattle, Feeder Cattle, and Lean Hog options using data from 2017 through September 2020. In Part 1 of this series, the growth factors behind the proliferation of agricultural options spread strategies in grains were evaluated using a series of trade volume data from 2017, 2018, and 2019.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |