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Rapeseed Options Explained
Rapeseed options are option contracts in which the underlying asset is a rapeseed futures contract.
The holder of a rapeseed 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 rapeseed futures at the strike price.
This right will cease to exist when the option expire after market close on expiration date.
Rapeseed Option Exchanges
Rapeseed option contracts are available for trading at NYSE Euronext (Euronext).
Euronext Rapeseed option prices are quoted in dollars and cents per metric ton and their underlying futures are traded in lots of 50 tonnes of rapeseed.
| Exchange & Product Name | Underlying Contract Size | Exercise Style | Option Price Quotes |
| Euronext Rapeseed Options | 50 ton (Full Contract Specs) | American | Calls | Puts |
Call and Put Options
Options are divided into two classes - calls and puts. Rapeseed call options are purchased by traders who are bullish about rapeseed prices. Traders who believe that rapeseed prices will fall can buy rapeseed 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.
Rapeseed Options vs. Rapeseed Futures
Compared to the outright purchase of the underlying rapeseed futures, rapeseed options offer advantages such as additional leverage as well as the ability to limit potential losses. However, they are also wasting assets that has the potential to expire worthless.Additional Leverage
Compared to taking a position on the underlying rapeseed futures outright, the buyer of a rapeseed option gains additional leverage since the premium payable is typically lower than the margin requirement needed to open a position in the underlying rapeseed futures.Limit Potential Losses
As rapeseed options only grant the right but not the obligation to assume the underlying rapeseed futures position, potential losses are limited to only the premium paid to purchase the option.
Flexibility
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.
Time Decay
Options have a limited lifespan and are subjected to the effects of time decay. The value of a rapeseed 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.
Related Articles
- Rapeseed Futures Basics
- Buying Rapeseed Futures to Profit from a Rise in Rapeseed Prices
- Selling Rapeseed Futures to Profit from a Fall in Rapeseed Prices
- Rapeseed Call Option Trading Basics
- Rapeseed Put Option Trading Basics
- Hedging Against Rising Rapeseed Prices with Rapeseed Futures
- Hedging Against Falling Rapeseed Prices with Rapeseed Futures
