Sugar Options Explained

Sugar options are option contracts in which the underlying asset is a sugar futures contract.

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

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

Sugar Option Exchanges

Sugar option contracts are available for trading at NYSE Euronext (Euronext) and Tokyo Grain Exchange (TGE).

Euronext White Sugar option prices are quoted in dollars and cents per metric ton and their underlying futures are traded in lots of 50 tonnes of sugar.

Euronext Raw Sugar options are traded in contract sizes of 112000 pounds (50 long tons) and their prices are quoted in dollars and cents per pound.

TGE Raw Sugar option prices are quoted in yen per metric ton and their underlying futures are traded in lots of 50 tonnes of sugar.

Exchange & Product NameUnderlying Contract SizeExercise StyleOption Price Quotes
Euronext White Sugar Options50 ton
(Full Contract Specs)
AmericanCalls | Puts
Euronext Raw Sugar Options112000 lb
(Full Contract Specs)
AmericanCalls | Puts
TGE Raw Sugar Options50 ton
(Full Contract Specs)
AmericanN.A.

Call and Put Options

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

Sugar Options vs. Sugar Futures

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

Limit Potential Losses

As sugar options only grant the right but not the obligation to assume the underlying sugar 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 sugar 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 Sugar Futures & Options Trading

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