Futures options offer some excellent trading strategies to commodity futures traders, but this option strategy has several pitfalls. Out-of-the-money options are often considered “sucker bets” by many experienced commodity traders, while most new traders flock to out-of-the-money futures options for their limited risk and high leverage features.
As a refresher, out-of-the-money futures options are:
Call options that have strike prices above the underlying futures contract
Example: A December $5.50 corn call when the December futures contract is trading at $5.10.
or-
Put options that have strike prices below the current market price.
Example: A December $5.00 corn put when the December futures contract is trading at $5.45.
As a refresher, out-of-the-money futures options are:
Call options that have strike prices above the underlying futures contract
Example: A December $5.50 corn call when the December futures contract is trading at $5.10.
or-
Put options that have strike prices below the current market price.
Example: A December $5.00 corn put when the December futures contract is trading at $5.45.