Buying Rapeseed Call Options to Profit from a Rise in Rapeseed Prices

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Rapeseed Futures Trading Basics

Rapeseed futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of rapeseed (eg. 50 tonnes) at a predetermined price on a future delivery date.

Rapeseed Futures Exchanges

You can trade Rapeseed futures at NYSE Euronext (Euronext).

Euronext Rapeseed futures prices are quoted in dollars and cents per metric ton and are traded in lot sizes of 50 tonnes .

Exchange & Product Name Symbol Contract Size Initial Margin
Euronext Rapeseed Futures
(Price Quotes)
ECO 50 tonnes
(Full Contract Spec)
EUR 1,300 (approx. 9%)
(Latest Margin Info)

Rapeseed Futures Trading Basics

Consumers and producers of rapeseed can manage rapeseed price risk by purchasing and selling rapeseed futures. Rapeseed producers can employ a short hedge to lock in a selling price for the rapeseed they produce while businesses that require rapeseed can utilize a long hedge to secure a purchase price for the commodity they need.

Rapeseed futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable rapeseed price movement. Speculators buy rapeseed futures when they believe that rapeseed prices will go up. Conversely, they will sell rapeseed futures when they think that rapeseed prices will fall.

Learn More About Rapeseed Futures & Options Trading

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Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

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Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Canola Jul ’20 (RSN20)

Stocks: 15 20 minute delay (Cboe BZX is real-time), ET. Volume reflects consolidated markets. Futures and Forex: 10 or 15 minute delay, CT.

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The Futures Options Quotes page provides a way to view the latest Options using current Intraday prices, or Daily Options using end-of-day prices.

Options prices are delayed at least 15 minutes, per exchange rules, and trade times are listed in CST.

Options Type

American Options: An American option is an option that can be exercised anytime during its life. American options allow option holders to exercise the option at any time prior to, and including its maturity date, thus increasing the value of the option to the holder.

European-Style Options: A European option is an option that can only be exercised at the end of its life, at its maturity. European options tend to sometimes trade at a discount to their comparable American option because American options allow investors more opportunities to exercise the contract.

Short Dated New Crop Options: The term short-dated refers to a shorter window before the option’s last trading day, otherwise known as option expiration. A traditional (or long-dated) option has a longer window before the option expires. In corn, traditional December calls and puts expire in late November. In soybeans, traditional November calls and puts expire in late October. Short-dated options have the same underlying futures contract (or instrument). The underlying futures contract for corn is December, and the underlying futures contract for soybeans is November. With short-dated, there are fewer days of coverage. As an example, a July short-dated option will expire in late June, even though the underlying futures contract is December.

Calendar Spread Options: A calendar spread is an option spread established by simultaneously entering a long and short position on the same underlying asset but with different delivery months. Sometimes referred to as an interdelivery, intramarket, time or horizontal spread.

Weekly Options: Weekly options are the same as standard American Options, except they expire on a Friday.

  • Week 1 options expire on the first Friday of the month
  • Week 2 options expire on the second Friday of the month
  • Week 3 options expire on the third Friday of the month
  • Week 4 options expire on the forth Friday of the month
  • Week 5 options expire on the fifth Friday of the month (if it exists)

Weekly European Options: Same as Weekly Options above but can only be exercised at the maturity date (Friday).

Monday Weekly Options: A weekly option that expires on Monday rather than Friday.

  • Week 1 – 1st Friday of the month
  • Week 2 – 2nd Friday of the month
  • Week 3 – 3rd Friday of the month
  • Week 4 – 4th Friday of the month
  • Week 5 – 5th Friday of the month

Wednesday Weekly Options: A weekly option that expires on Wednesday rather than Friday.

  • Week 1 – 1st Wednesday of the month
  • Week 2 – 2nd Wednesday of the month
  • Week 3 – 3rd Wednesday of the month
  • Week 4 – 4th Wednesday of the month
  • Week 5 – 5th Wednesday of the month

New Crop Options: Options with an expiration date after harvest has been completed.

CSO Consecutive: A calendar Spread where the first leg is the front month and the second leg is the next available month.

Average Price Options: A type of option where the payoff depends on the difference between the strike price and the average price of the underlying asset. If the average price of the underlying asset over a specified time period exceeds the strike price of the average price put, the payoff to the option buyer is zero. Conversely, if the average price of the underlying asset is below the strike price of such a put, the payoff to the option buyer is positive and is the difference between the strike price and the average price. An average price put is considered an exotic option, since the payoff depends on the average price of the underlying over a period of time, as opposed to a straight put, the value of which depends on the price of the underlying asset at any point in time.

Crack Spreads: The spread created in commodity markets by purchasing oil options and offsetting the position by selling gasoline and heating oil options. This investment alignment allows the investor to hedge against risk due to the offsetting nature of the securities.

Crack Spread Average Price Options: Similar to Crack Spreads above, but use Average Price options.

MidCurve Options: Eurodollar Mid-Curve options are short-dated American-style options on long-dated Eurodollar futures. These options, with a time to expiration of three months to one year, have as their underlying instrument Eurodollar futures one, two, three, four or five years out on the yield curve.

Weekly 1-Year Options: Similar to MidCurve options, but expire in 1 weeks.

Weekly 2-Year Options: Similar to MidCurve options, but expire in 2 weeks.

Weekly 3-Year Options: Similar to MidCurve options, but expire in 3 weeks.

EOM Options: End Of Month options are designed to expire on the last business day of each calendar month, offering alignment with month-end accounting cycles.

Additional Selection Criteria

Select an options expiration date from the drop-down list at the top of the table, and select “Near-the-Money” or “Show All’ to view all options.

You can also view options in a Stacked or Side-by-Side view. The View setting determines how Puts and Calls are listed on the quote. For both views, “Near-the-Money” Calls are Puts are highlighted:

  • Near-the-Money – Puts: Strike Price is greater than the Last Price
  • Near-the-Money – Calls: Strike Price is less than the Last Price
Data Shown on the Page

For the selected Options Expiration date, the information listed at the top of the page includes:

  • Options Expiration: The last day on which an option may be exercised, or the date when an option contract ends. Also includes the number of days till options expiration (this number includes weekends and holidays).
  • Price Value of Option Point: The intrinsic dollar value of one option point. To calculate the premium of an option in US Dollars, multiply the current price of the option by the option contract’s point value. (Note: The point value will differ depending on the underlying commodity.)
Stacked View

A Stacked view lists Puts and Calls one on top of the other, sorted by descending Strike Price. Puts are identified with a “P” after the Strike Price, while Calls are identified with a “C” after the Strike Price.

  • Strike: The price at which the contract can be exercised. Strike prices are fixed in the contract. For call options, the strike price is where the shares can be bought (up to the expiration date), while for put options the strike price is the price at which shares can be sold. The difference between the underlying contract’s current market price and the option’s strike price represents the amount of profit per share gained upon the exercise or the sale of the option. This is true for options that are in the money; the maximum amount that can be lost is the premium paid.
  • Open: The open price for the options contract for the day.
  • High: The high price for the options contract for the day.
  • Low: The low price for the options contract for the day.
  • Last: The last traded price for the options contract.
  • Change: Today’s change in price
  • Volume: The total number of option contracts bought and sold for the day, for that particular strike price.
  • Open Interest: Open Interest is the total number of open option contracts that have been traded but not yet liquidated via offsetting trades for that date.
  • Premium: The price of the options contract.
  • Time: The time of the last trade for the options contract.
Side-by-Side View

A Side-by-Side View lists Calls on the left and Puts on the right.

  • Last: The last traded price for the options contract.
  • Volume: The total number of option contracts bought and sold for the day, for that particular strike price.
  • Open Interest: Open Interest is the total number of open option contracts that have been traded but not yet liquidated via offsetting trades for that date.
  • Premium: The price of the options contract.
  • Strike: The price at which the contract can be exercised. Strike prices are fixed in the contract. For call options, the strike price is where the shares can be bought (up to the expiration date), while for put options the strike price is the price at which shares can be sold. The difference between the underlying contract’s current market price and the option’s strike price represents the amount of profit per share gained upon the exercise or the sale of the option. This is true for options that are in the money; the maximum amount that can be lost is the premium paid.
Totals

The totals listed at the bottom of the page are calculated from All calls and puts, and not just Near-the-Money options.

  • Put Premium Total: The total dollar value of all put option premiums.
  • Call Premium Total: The total dollar value of all call option premiums.
  • Put/Call Premium Ratio: Put Premium Total / Call Premium Total
  • Put Open Interest Total: The total open interest of all put options.
  • Call Open Interest Total: The total open interest of all call options.
  • Put/Call Open Interest Ratio: Put Open Interest Total / Call Open Interest Total.

Buying Call Options: The Benefits & Downsides Of This Bullish Trading Strategy

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Last Updated on June 24, 2020

Buying call options is a bullish strategy using leverage and is a risk-defined alternative to buying stock. Foregoing the abstract “call options give the buyer the right but not the obligation to call away stock”, a practical illustration will be given:

  1. A trader is very bullish on a particular stock trading at $50.
  2. The trader is either risk-averse, wanting to know before hand their maximum loss or wants greater leverage than simply owning stock.
  3. The trader expects the stock to move above $53.10 in the next 30 days.

Given those expectations, the trader selects the $52.50 call option strike price which is trading for $0.60. For this example, the trader will buy only 1 option contract (Note: 1 contract is for 100 shares) so the total cost will be $60 ($0.60 x 100 shares/contract). The graph below of this hypothetical stock is given below:

There are numerous reasons to be bullish: the price chart shows very bullish action (stock is moving upwards); the trader might have used other indicators like MACD (see: MACD), Stochastics (see: Stochastics) or any other technical or fundamental reason for being bullish on the stock.

Options Offer Defined Risk

When a call option is purchased, the trader instantly knows the maximum amount of money they can possibly lose. The max loss is always the premium paid to own the option contract; in this example, $60. Whether the stock falls to $5 or $50 a share, the call option holder will only lose the amount they paid for the option. This is the risk-defined benefit often discussed about as a reason to trade options.

Options offer Leverage

The other benefit is leverage. When a stock price is above its breakeven point (in this example, $53.10) the option contract at expiration acts exactly like stock. To illustrate, if a 100 shares of stock moves $1, then the trader would profit $100 ($1 x $100). Likewise, above $53.10, the options breakeven point, if the stock moved $1, then the option contract would move $1, thus making $100 ($1 x $100) as well. Remember, to buy the stock, the trader would have had to put up $5,000 ($50/share x 100 shares). The trader in this example, only paid $60 for the call option.

Options require Timing

The important part about selecting an option and option strike price, is the trader’s exact expectations for the future. If the trader expects the stock to move higher, but only $1 higher, then buying the $52.50 strike price would be foolish. This is because at expiration, if the stock price is anywhere below $52.50, whether it be $20 or $52.49, the call option will expire worthless. If a trader was correct on their prediction that the stock would move higher by $1, they would still have lost.

Likewise, if the stock moved to $53 the day after the call option expired, the trader still would have lost all their premium paid for the option. Simply stated, when buying options, you need to predict the correct direction of stock movement, the size of the stock movement, and the time period the stock movement will occur; this is more complicated then stock buying, when all a person is doing is predicting the correct direction of a stock move.

Call Options Profit, Loss, Breakeven

The following is the profit/loss graph at expiration for the call option in the example given on the previous page.

Break-even

The breakeven point is quite easy to calculate for a call option:

  • Breakeven Stock Price = Call Option Strike Price + Premium Paid

To illustrate, the trader purchased the $52.50 strike price call option for $0.60. Therefore, $52.50 + $0.60 = $53.10. The trader will breakeven, excluding commissions/slippage, if the stock reaches $53.10 by expiration.

Profit

To calculate profits or losses on a call option use the following simple formula:

  • Call Option Profit/Loss = Stock Price at Expiration – Breakeven Point

For every dollar the stock price rises once the $53.10 breakeven barrier has been surpassed, there is a dollar for dollar profit for the options contract. So if the stock gains $5.00 to $55.00 by expiration, the owner of the the call option would make $1.90 per share ($55.00 stock price – $53.10 breakeven stock price). So total, the trader would have made $190 ($1.90 x 100 shares/contract).

Partial Loss

If the stock price increased by $2.75 to close at $52.75 by expiration, the option trader would lose money. For this example, the trader would have lost $0.35 per contract ($52.75 stock price – $53.10 breakeven stock price). Therefore, the hypothetical trader would have lost $35 (-$0.35 x 100 shares/contract).

To summarize, in this partial loss example, the option trader bought a call option because they thought that the stock was going to rise. The trader was right, the stock did rise by $2.75, however, the trader was not right enough. The stock needed to move higher by at least $3.10 to $53.10 to breakeven or make money.

Complete Loss

If the stock did not move higher than the strike price of the option contract by expiration, the option trader would lose their entire premium paid $0.60. Likewise, if the stock moved down, irrelavent by how much it moved downward, then the option trader would still lose the $0.60 paid for the option. In either of those two circumstances, the trader would have lost $60 (-$0.60 x 100 shares/contract).

Again, this is where the limited risk part of option buying comes in: the stock could have dropped 20 points, but the option contract owner would still only lose their premium paid, in this case $0.60.

Buying call options has many positive benefits like defined-risk and leverage, but like everything else, it has its downside, which is explored on the next page.

Downside of Buying Call Options

Take another look at the call option profit/loss graph. This time, think about how far away from the current stock price of $50, the breakeven price of $53.10 is.

Call Options need Big Moves to be Profitable

Putting percentages to the breakeven number, breakeven is a 6.2% move higher in only 30 days. That sized movement is possible, but highly unlikely in only 30 days. Plus, the stock has to move more than that 6.2% to even start to make a cent of profit, profit being the whole purpose of entering into a trade. To begin with, a comparison of buying 100 shares outright and buying 1 call option contract ($52.50 strike price) will be given:

  • 100 shares: $50 x 100 shares = $5,000
  • 1 call option: $0.60 x 100 shares/contract = $60; keeps the rest ($4,940) in savings.

If the stock moves 2% in the next 30 days, the shareholder makes $100; the call option holder loses $60:

  • Shareholder: Gains $100 or 2%
  • Option Holder: Loses $60 or 1.2% of total capital

If the stock moves 5% in the following 30 days:

  • Shareholder: Gains $250 or 5%
  • Option Holder: Loses $60 or 1.2%

If the stock moves 8% over the next 30 days, the option holder finally begins to make money:

  • Shareholder: Gains $400 or 8%
  • Option Holder: Gains $90 or 1.8%

It’s fair to say, that buying these out-of-the money (OTM) call options and hoping for a larger than 6.2% move higher in the stock is going to result in numerous times when the trader’s call options will expire worthless. However, the benefit of buying call options to preserve capital does have merit.

Capital Preservation

Substantial losses can be incredibly devastating. For an extreme example, a 50% loss means a trader has to make 100% profit on their next trade in order to breakeven. Buying call options and continuing the prior examples, a trader is only risking a small 1.2% of capital for each trade. This prevents the trader from incurring a single substantial loss, which is a real reality when stock trading. For example, a simple small loss of 5% is easier to take for an option call holder than a shareholder:

  • Shareholder: Loses $250 or 5%
  • Option Holder: Loses $60 or 1.2%

For a catastrophic 20% loss things get much worse for the stockholder:

  • Shareholder: Loses $1,000 or 20%
  • Option Holder: Loses $60 or 1.2%

In the case of the 20% loss, the option holder can strike out for over 16 months and still not lose as much as the stockholder. Moreover, the stockholder now has to make over 25% on their stock purchases to bring their capital back to their previous $5,000 level.

Moral of the story

Options are tools offering the benefits of leverage and defined risk. But like all tools, they are best used in specialized circumstances. Options have many variables. In summary, the three most important variables are:

  1. The direction the underlying stock will move.
  2. How much the stock will move.
  3. The time frame the stock will make its move.
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