Page 21 - Futures Money Machine-Study Session #5

Beyond The Basics

Options on Futures…

Depending on the expiration cycle, some futures options expire to cash, while others expire
to the underlying futures contract. Futures options will expire into cash when the options
and futures expire in the same month. If the options and the future expire in different
months, the options settle to the future. For example if we have FEB /ES Call that expires
ITM, we end up with a MAR /ES Future. But, if a MAR Call expires ITM, it settles to cash.

We need to be aware of which futures have liquid options and which do not. The following
futures have tradable options: /ZT, /ZF, /ZN, /ZB, /GC, /6E, /ZC, /ZS, /ZW, /NQ, /ES, /CL, and
/NG.

Also, the smaller capital requirement involved is an advantage of trading options on futures
as opposed to options on individual equities. If an investor does not have enough capital for a
portfolio margin account, options on futures are actually a less expensive way of trading
large indices such as the SPX, especially if the investor is interested in selling naked short
positions.