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Tin Options Explained

Tin options are option contracts in which the underlying asset is a tin futures contract.

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

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

Tin Option Exchanges

Tin option contracts are available for trading at London Metal Exchange (LME).

LME Tin option prices are quoted in dollars and cents per metric ton and their underlying futures are traded in lots of 5 tonnes (11023 pounds) of tin.

Exchange & Product Name	Underlying Contract Size	Exercise Style	Option Price Quotes
LME Tin Options	5 ton (Full Contract Specs)	American	N.A.

Call and Put Options

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

Tin Options vs. Tin Futures

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

Limit Potential Losses

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

Tin Options & Futures

Futures Basics

Metal Futures