5 Questions
What is the term used for option series with strike price closest to the FSP?
At the Money (ATM) option series
When is the FSP derived?
Through a daily polling process
What happens if the FSP is exactly midway between two strike prices?
Immediate three option series above and below FSP are referred to as 'Close to the Money' (CTM) option series
When do the expiry day of “Options on Goods” and that of “Futures” of the underlying goods fall?
On the same day
When are call and put option contracts belonging to ‘Close to the Money’ (CTM) option series exercised?
Only on 'explicit instruction' for exercise by the buyers (holders) of such option contracts
Study Notes
Options on Goods
- The term used for option series with a strike price closest to the Forward Settlement Price (FSP) is 'Close to the Money' (CTM) series.
Forward Settlement Price (FSP)
- The FSP is derived from the spot price of the underlying asset.
FSP Between Two Strike Prices
- If the FSP is exactly midway between two strike prices, two CTM series are generated, one for calls and one for puts.
Expiry Day
- The expiry day of “Options on Goods” and that of “Futures” of the underlying goods fall on the same day.
Exercising Options
- Call and put option contracts belonging to the CTM option series are exercised on the expiry day.
Test your knowledge of options trading with this quiz on At the Money (ATM) option series and the process of determining the daily spot prices of commodities. Explore the concepts of Futures Contract expiry and Option on Goods expiration to deepen your understanding of trading terminology and processes.
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