Interpretation of sugar option

PART 1 definition of white sugar option

Q 1: What is an option?

A: Options are contracts to sell rights.

Q2: What is a sugar option contract?

A: Sugar option contract refers to the standardized contract formulated by Zhengzhou Commodity Exchange, which stipulates that the buyer has the right to buy or sell the corresponding sugar futures at a specific price in a certain period of time in the future.

The buyer has this right at the expense of paying a certain patent fee, but does not undertake the obligation of buying and selling. After receiving a certain amount of patent fee, the seller must unconditionally obey the buyer's choice within a certain period of time and fulfill the promise at the time of transaction.

The second part explains the main terms of sugar option contract.

Sugar Option Contract (Draft for Comment)

(1) Contract Type

(2) The minimum variable price is half of the futures variable unit. (Arbitrage: The price fluctuation of flat options is half that of futures; International: half or equal to the unit of futures variables. )

(3) The range of price limit is the same as that of sugar futures contract: absolute value.

(4) Last trading day (due date)

(5) Exercise price

Based on the settlement price of sugar futures on the previous trading day, five real options, 1 flat options and five imaginary options are set according to the exercise price range (designed by segments according to the exercise price). The exercise price quantity is 1 1. When the exercise price above or below the average is less than 5, the exercise price of the option will be increased to ensure that the exercise price contract listed in the day's transaction can cover the price fluctuation on the target day.

(6) Exercise method: American-the buyer can apply for the exchange right on any trading day (15:00) before the expiration; The buyer may submit an application for exercise or waiver before the expiration of 15:30.

The advantages of American options are:

① Risk control: reduce the amount of exercise on the due date.

(2) Arbitrage: It is convenient for futures option arbitrage.

③ Demand: commodity options has poor liquidity, and American options can solve the problem of leaving some options.

The third part explains the trading rules of sugar options.

(1) bidding principles

(2) Arbitrage instruction

Four elements: transaction quantity, subject matter, expiration date and exercise price.

Remarks: During the period of call auction, when there is no unilateral quotation, the exchange will not accept arbitrage orders.

Buy cross arbitrage vs buy wide cross arbitrage

Buy intertemporal arbitrage

Buy large-span arbitrage