Soybeans Options Explained

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Contents

Soybeans Options Explained

Soybeans options are option contracts in which the underlying asset is a soybeans futures contract.

The holder of a soybeans option possesses the right (but not the obligation) to assume a long position (in the case of a call option) or a short position (in the case of a put option) in the underlying soybeans futures at the strike price.

This right will cease to exist when the option expire after market close on expiration date.

Soybeans Option Exchanges

Soybeans option contracts are available for trading at Chicago Board of Trade (CBOT) and Tokyo Grain Exchange (TGE).

CBOT Soybeans option prices are quoted in dollars and cents per bushel and their underlying futures are traded in lots of 5000 bushels (136 metric tons) of soybeans.

TGE Soybeans options are traded in contract sizes of 50 tonnes and their prices are quoted in yen per metric ton.

Exchange & Product Name Underlying Contract Size Exercise Style Option Price Quotes
CBOT Soybeans Options 5000 bu
(Full Contract Specs)
American N.A.
TGE Soybeans Options 50 ton
(Full Contract Specs)
American N.A.

Call and Put Options

Options are divided into two classes – calls and puts. Soybeans call options are purchased by traders who are bullish about soybeans prices. Traders who believe that soybeans prices will fall can buy soybeans put options instead.

Buying calls or puts is not the only way to trade options. Option selling is a popular strategy used by many professional option traders. More complex option trading strategies, also known as spreads, can also be constructed by simultaneously buying and selling options.

Soybeans Options vs. Soybeans Futures

Additional Leverage

Limit Potential Losses

As soybeans options only grant the right but not the obligation to assume the underlying soybeans futures position, potential losses are limited to only the premium paid to purchase the option.

Flexibility

Using options alone, or in combination with futures, a wide range of strategies can be implemented to cater to specific risk profile, investment time horizon, cost consideration and outlook on underlying volatility.

Time Decay

Options have a limited lifespan and are subjected to the effects of time decay. The value of a soybeans option, specifically the time value, gets eroded away as time passes. However, since trading is a zero sum game, time decay can be turned into an ally if one choose to be a seller of options instead of buying them.

Learn More About Soybeans Futures & Options Trading

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Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

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    Free Trading Education!
    Free Demo Account!

  • Binomo
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Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Soybeans Futures Trading Basics

Soybeans futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of soybeans (eg. 5000 bushels) at a predetermined price on a future delivery date.

Soybeans Futures Exchanges

You can trade Soybeans futures at Chicago Board of Trade (CBOT) and Tokyo Grain Exchange (TGE).

CBOT Soybeans futures prices are quoted in dollars and cents per bushel and are traded in lot sizes of 5000 bushels (136 metric tons).

TGE Soybeans futures are traded in units of 50 tonnes and contract prices are quoted in yen per metric ton.

Exchange & Product Name Symbol Contract Size Initial Margin
CBOT Soybeans Futures
(Price Quotes)
S 5000 bushels
(Full Contract Spec)
USD 4,725 (approx. 10%)
(Latest Margin Info)
TGE Soybeans Futures
(Price Quotes)
50 tonnes
(Full Contract Spec)
JPY 135,000 (approx. 7%)
(Latest Margin Info)

Soybeans Futures Trading Basics

Consumers and producers of soybeans can manage soybeans price risk by purchasing and selling soybeans futures. Soybeans producers can employ a short hedge to lock in a selling price for the soybeans they produce while businesses that require soybeans can utilize a long hedge to secure a purchase price for the commodity they need.

Soybeans futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable soybeans price movement. Speculators buy soybeans futures when they believe that soybeans prices will go up. Conversely, they will sell soybeans futures when they think that soybeans prices will fall.

Learn More About Soybeans Futures & Options Trading

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Continue Reading.

Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Buying Soybeans Put Options to Profit from a Fall in Soybeans Prices

If you are bearish on soybeans, you can profit from a fall in soybeans price by buying (going long) soybeans put options.

Example: Long Soybeans Put Option

You observed that the near-month CBOT Soybeans futures contract is trading at the price of USD 9.6900 per bushel. A CBOT Soybeans put option with the same expiration month and a nearby strike price of USD 9.7000 is being priced at USD 0.6500/bu. Since each underlying CBOT Soybeans futures contract represents 5,000 bushels of soybeans, the premium you need to pay to own the put option is USD 3,250.

Assuming that by option expiration day, the price of the underlying soybeans futures has fallen by 15% and is now trading at USD 8.2360 per bushel. At this price, your put option is now in the money.

Gain from Put Option Exercise

By exercising your put option now, you get to assume a short position in the underlying soybeans futures at the strike price of USD 9.7000. In other words, it also means that you get to sell 5,000 bushels of soybeans at USD 9.7000/bu on delivery day.

To take profit, you enter an offsetting long futures position in one contract of the underlying soybeans futures at the market price of USD 8.2365 per bushel, resulting in a gain of USD 1.4640/bu. Since each CBOT Soybeans put option covers 5,000 bushels of soybeans, gain from the long put position is USD 7,320. Deducting the initial premium of USD 3,250 you paid to purchase the put option, your net profit from the long put strategy will come to USD 4,070.

Long Soybeans Put Option Strategy
Gain from Option Exercise = (Option Strike Price – Market Price of Underlying Futures) x Contract Size
= (USD 9.7000/bu – USD 8.2360/bu) x 5000 bu
= USD 7,320
Investment = Initial Premium Paid
= USD 3,250
Net Profit = Gain from Option Exercise – Investment
= USD 7,320 – USD 3,250
= USD 4,070
Return on Investment = 125%

Sell-to-Close Put Option

In practice, there is often no need to exercise the put option to realise the profit. You can close out the position by selling the put option in the options market via a sell-to-close transaction. Proceeds from the option sale will also include any remaining time value if there is still some time left before the option expires.

In the example above, since the sale is performed on option expiration day, there is virtually no time value left. The amount you will receive from the soybeans option sale will be equal to it’s intrinsic value.

Learn More About Soybeans Futures & Options Trading

You May Also Like

Continue Reading.

Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Top Binary Options Broker 2020!
    Best Choice For Beginners!
    Big Sign-Up Bonus!
    Free Trading Education!
    Free Demo Account!

  • Binomo
    Binomo

    Only For Experienced Traders!

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