Options on Futures

Calls and puts on futures contracts, trading the right to a position without the obligation.

Overview

Exchange traded options on CME and ICE contracts grant the right, exercisable any time, to enter futures at a strike, with premium paid up front. Farmers buy puts to floor sale prices while keeping upside, processors buy calls to cap purchase costs, and collars pair sold calls against bought puts to cheapen protection. Pricing follows the Black 76 variant of Black Scholes, with volatility the key input, and energy options quote in cents per barrel times contract size. Deep markets exist in crude, gas, gold, corn, and soybeans, where option open interest often tops futures. Exercise converts to a futures position, which then faces margin.