18.1 NATURE OF FUTURES OPTIONS

A futures option is the right, but not the obligation, to enter into a futures contract at a certain futures price by a certain date. Specifically, a futures call option is the right to enter into a long futures contract at a certain price; a futures put option is the right to enter into a short futures contract at a certain price. Futures options are generally American; that is, they can be exercised any time during the life of the contract.

If a futures call option is exercised, the holder acquires a long position in the underlying futures contract plus a cash amount equal to the most recent settlement futures price minus the strike price. If a futures put option is exercised, the holder acquires a short position ...

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