|
NE Oregon | I'm not sure how you came up with the call being worth $2.60/bu if the market hit 12.00 in July and it is a July 12.00 Call.
Let's put it this way, upon the expiration of the option, it will definitively be worth however much it is in the money by. So, if your the July '15 soybean contract expires at 12.00, your 12.00 Call would be worth $0 because it is not in the money at all. But if you hit 12.00 at the beginning of June, there would be some Time Value, and it is impossible to know how much the option would be worth then. But if the option expired and the market happened to be at 13.00, your 12.00 Call would be worth $1.00. of which you paid 9 cents for. Your profit would be about 91 cents/bu less commissions and fees. And on 10,000 bu (2 contracts) that would be about $9,100 of profit.
If you are doing this for re-ownership, you are basically re-owning your beans at 12.09 (strike price of 12.00 plus the 9 cents you pay for the Call.) So if the market goes above there you are long and capture whatever the difference between 12.09 and where the market ends up. Of course you could sell your Call back at any time you want for whatever amount of money it is worth, it's just easiest to determine exactly what it would be worth under certain "what if" price scenarios if we are figuring it upon the expiration of the option. And if the market isn't above 12.00 you only give up your original 9 cents.
Furthermore, for simplicity's sake I like to do all calculations in the contract value In this example, cents/bu. You bought the options for 9 cents (as opposed to $900) and in my example your options were worth $1.00/bu, with a profit of 91 cents. Once you have gotten there, then you can figure the cash value of the 91 cents. Otherwise you are converting way more things over into cash dollar value and there is more room for mathematical errors.
Hope this helps. | |
|
Futures trading
