Because option prices track futures prices, speculators can use them to take advantage of price changes in the underlying commodity, and hedgers can protect their cash positions with them. The May soybean option tracks the May soybean futures contract. The December S&P 500 index option follows the December S&P 500 index futures. Therefore, the March T-bond option premium tracks the March T-bond futures price. Many of the features that apply to stock options apply to futures options.Īn option's price, its premium, tracks the price of its underlying futures contract which, in turn, tracks the price of the underlying cash. These options pits are usually located near those where the underlying futures trade. Today, puts and calls on agricultural, metal, and financial (foreign currency, interest-rate and stock index) futures are traded by open outcry in designated pits.
Options on futures began trading in 1983.
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