Copper options are option contracts in which the underlying asset is a copper futures contract.
The holder of a copper option possesses the right (but not the obligation) to assume a long position (in the case of a call option) or a short position (in the case of a put option) in the underlying copper futures at the strike price.
This right will cease to exist when the option expire after market close on expiration date.
Copper option contracts are available for trading at London Metal Exchange (LME) and New York Mercantile Exchange (NYMEX).
LME Copper option prices are quoted in dollars and cents per metric ton and their underlying futures are traded in lots of 25 tonnes (55116 pounds) of copper.
NYMEX Copper options are traded in contract sizes of 25000 pounds and their prices are quoted in dollars and cents per pound.
|Exchange & Product Name||Underlying Contract Size||Exercise Style||Option Price Quotes|
|LME Copper Options||25 ton|
(Full Contract Specs)
|NYMEX Copper Options||25000 lb|
(Full Contract Specs)
|American||Calls | Puts|
Options are divided into two classes - calls and puts. Copper call options are purchased by traders who are bullish about copper prices. Traders who believe that copper prices will fall can buy copper put options instead.
Buying calls or puts is not the only way to trade options. Option selling is a popular strategy used by many professional option traders. More complex option trading strategies, also known as spreads, can also be constructed by simultaneously buying and selling options.
As copper options only grant the right but not the obligation to assume the underlying copper futures position, potential losses are limited to only the premium paid to purchase the option.
Using options alone, or in combination with futures, a wide range of strategies can be implemented to cater to specific risk profile, investment time horizon, cost consideration and outlook on underlying volatility.
Options have a limited lifespan and are subjected to the effects of time decay. The value of a copper option, specifically the time value, gets eroded away as time passes. However, since trading is a zero sum game, time decay can be turned into an ally if one choose to be a seller of options instead of buying them.