Soybeans Options Explained

Soybeans options are option contracts in which the underlying asset is a soybeans futures contract.

The holder of a soybeans 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 soybeans futures at the strike price.

This right will cease to exist when the option expire after market close on expiration date.

Soybeans Option Exchanges

Soybeans option contracts are available for trading at Chicago Board of Trade (CBOT) and Tokyo Grain Exchange (TGE).

CBOT Soybeans option prices are quoted in dollars and cents per bushel and their underlying futures are traded in lots of 5000 bushels (136 metric tons) of soybeans.

TGE Soybeans options are traded in contract sizes of 50 tonnes and their prices are quoted in yen per metric ton.

Exchange & Product NameUnderlying Contract SizeExercise StyleOption Price Quotes
CBOT Soybeans Options5000 bu
(Full Contract Specs)
AmericanN.A.
TGE Soybeans Options50 ton
(Full Contract Specs)
AmericanN.A.

Call and Put Options

Options are divided into two classes - calls and puts. Soybeans call options are purchased by traders who are bullish about soybeans prices. Traders who believe that soybeans prices will fall can buy soybeans 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.

Soybeans Options vs. Soybeans Futures

Compared to the outright purchase of the underlying soybeans futures, soybeans 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 soybeans futures outright, the buyer of a soybeans option gains additional leverage since the premium payable is typically lower than the margin requirement needed to open a position in the underlying soybeans futures.

Limit Potential Losses

As soybeans options only grant the right but not the obligation to assume the underlying soybeans 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 soybeans 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.

Learn More About Soybeans Futures & Options Trading

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