Kcbt wheat options trading
The KCBT wheat option valuation is not as straightforward as futures valuation. Option premium is comprised of intrinsic value and extrinsic value. An option has intrinsic value if the market is trading above the strike price of a call option, or below the strike price of a put option. The more time that a option has the more extrinsic value it has. As a option approaches it expiration date is looses value. This is called time decay. At expiration a kcbt wheat options trading has no extrinsic value so if the option is out of the money it expires worthless.
Wheat option prices do not move in tandem with futures prices. The amount that a option value will increase based upon a increase in its futures price is called its delta.
Call option deltas are measures from 0 to 1. If a wheat call option has a delta of. An option buyer does not necessarily need to exercise an option to realize a profit.
Instead, the buyer may choose to liquidate his position by offsetting, or selling, the option on or before the last trading day. A seller can offset by buying the option back. If the option's value has increased, the buyer kcbt wheat options trading offsets will realize a profit. If the option's value has decreased, the buyer who offsets may be able to recover some of the original premium paid, reducing his loss. This ability to buy and sell the option without becoming involved in the futures market enhances the option's flexibility as a marketing tool.