metals products Options Strategy Guide for Metals Products As the world’s largest and most diverse derivatives marketplace, CME Group is where the world comes to manage risk. CME Group exchanges – CME, CBOT, NYMEX and COMEX – offer the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate. CME Group brings buyers and sellers together through its CME Globex electronic trading platform and its trading facilities in New York and Chicago. CME Group also operates CME Clearing, one of the largest central counterparty clearing services in the world, which provides clearing and settlement services for exchange-traded contracts, as well as for over-the-counter derivatives transactions through CME ClearPort. These products and services ensure that businesses everywhere can substantially mitigate counterparty credit risk in both listed and over-the-counter derivatives markets. Options Strategy Guide for Metals Products The Metals Risk Management Marketplace Because metals markets are highly responsive to overarching global economic The hypothetical trades that follow look at market position, market objective, and geopolitical influences, they present a unique risk management tool profit/loss potential, deltas and other information associated with the 12 for commercial and institutional firms as well as a unique, exciting and strategies. The trading examples use our Gold, Silver or Copper options on potentially rewarding opportunity for individuals who seek to profit by correctly futures. Although these examples are for educational purposes and are not anticipating price changes. intended to be construed as trading advice or recommendations, they do, however, offer a glimpse of the vast number of trading opportunities that await Our metals futures markets include full-size contracts on gold, silver, platinum, you with these products, making our Metals Complex “Your Flexible Choice.” palladium, copper and steel; and smaller-size contracts for gold (miNY 50 oz.), silver (miNY 2,500 oz.), and copper (E-mini 12,500 lbs.). These markets We offer you a suite of options on our standard Gold, Silver and Copper combine a unique volatility trading opportunity with an effective means for futures, with the safety and security of the world’s largest regulated derivatives risk management. And with average daily volume of approximately 300,000 marketplace. Options on futures offer traders additional tools to express their futures and options contracts traded, our metals markets offer extensive trading opinion in a market, as well as flexibility in managing price risk as a form of opportunities for these products. In addition, we’ve recently launched a new insurance. They give the buyer of an options contract the right, but not the clearing service – Cleared OTC London Gold Forwards. This service provides obligation, to buy (a call option) or sell (a put option) the underlying futures centralized clearing, settlement and delivery for OTC London unallocated gold contract at a specific price and time, allowing participation in favorable price forwards, with execution remaining in the OTC market. moves. If the market moves against the options position, the holder can let it expire worthless, with the only cost being the premium paid. Our metals This document highlights 12 option strategies that allow traders to take options have American-style expiration. American-style is a type of option advantage of a variety of market conditions, ranging from bearish to bullish contract that can be exercised at the buyer’s discretion on any trading day up to and volatile to stable. These strategies are just a sampling of the many trading and including the expiration date and is exercisable to futures. opportunities available in our Metals product suite. Our Metals Product Suite Precious Base Ferrous • Gold futures (GC) and options (OG) • Copper futures (HG) and options (HX) • HRC Steel futures (HR) • miNY Gold futures (QO) • E-mini Copper futures (QC) • Silver futures (SI) and options (SO) • miNY Silver futures (QI) • Platinum futures (PL) and options (PO) • Palladium futures (PA) The trading strategies examples on the following pages do not include transaction fees. All applicable transaction fees should be considered when evaluating strategies. 1 cmegroup.com/metals Below are the basic futures strategies of long and short as a reference. LONG FUTURES SHORT FUTURES Long Gold Futures @ $1,000 Short Silver Futures @ $17.00 +75 +1.50 +50 +1.00 +25 +0.50 Futures Prices Futures Prices 0 0 $ troy ounce $ troy $ troy ounce $ troy 925 950 975 1000 1025 1050 1075 15.5 16 16.5 17 17.5 18 18.5 Profit (+) / Loss (-) (+) / Loss Profit Profit (+) / Loss (-) (+) / Loss Profit -25 -0.50 -50 -1.00 -75 -1.50 Strategy Long Futures Strategy Short Futures Market Opinion Bullish Market Opinion Bearish Market Position Buy futures Market Position Sell futures Option Strategy N/A Option Strategy N/A Debit/Credit Debit/Credit Profit Potential Unlimited Profit Potential Unlimited except to the extent that the futures price cannot fall Profit Point Any futures price above the price at below zero which the position was initiated Profit Point Any futures price below the price at Loss Potential Unlimited except to the extent which the position was initiated that the futures price cannot fall below zero Loss Potential Unlimited Loss Point Any futures price below the price at Loss Point Any futures price above the price at which the position was initiated which the position was initiated Break-Even Point Futures price at which the position Break-Even Point Futures price at which the position was initiated was initiated Margin Required Yes Margin Required Yes All examples throughout this guide use various strike prices assuming that the underlying contract is trading at the following prices: 2 $1,000 Gold futures, $17.00 Silver futures and $3.00 Copper futures. Options Strategy Guide for Metals Products LONG CALL LONG PUT Long $3.00 Copper Call @ $0.20/Lb. Long $1,000 Gold Put @ $25/Ounce +0.60 +75 Futures Prices +0.40 +50 +0.20 +25 Futures Prices -0.00 0 $ troy ounce $ troy ounce $ troy 2.4 2.6 2.8 3 3.2 3.4 3.6 925 950 975 1000 1025 1050 1075 Profit (+) / Loss (-) (+) / Loss Profit (-) (+) / Loss Profit -0.20 -25 -0.40 -50 -0.60 -75 Strategy Long Call Strategy Long Put Market Opinion Bullish Market Opinion Bearish Market Position Buy a call Market Position Buy a put Option Strategy Debit premium paid Option Strategy Debit premium paid Debit/Credit Debit/Credit Profit Potential Unlimited Profit Potential Unlimited except to the extent that the futures price cannot fall below zero Profit Point Any futures price above the Profit Point Any futures price below the strike strike price plus premium paid price minus premium paid Loss Potential Limited to premium paid Loss Potential Limited to premium paid Loss Point The maximum loss point is any futures Loss Point The maximum loss point is any futures price at or below the strike price price at or above the strike price Break-Even Point Strike price + premium paid Break-Even Point Strike price – premium paid Margin Required No Margin Required No All examples throughout this guide use various strike prices assuming that the underlying contract is trading at the following prices: $1,000 Gold futures, $17.00 Silver futures and $3.00 Copper futures. 3 cmegroup.com/metals SHORT CALL SHORT PUT Short $17.00 Silver Call @ $0.50/Ounce Short $3.00 Copper Put @ $0.20/Lb. +1.50 +0.60 +1.00 +0.40 +0.50 +0.20 Futures Prices Futures Prices 0 0 $ troy ounce $ troy $ troy ounce $ troy 15.5 16 16.5 17 17.5 18 18.5 2.4 2.6 2.8 3 3.2 3.4 3.6 Profit (+) / Loss (-) (+) / Loss Profit Profit (+) / Loss (-) (+) / Loss Profit -0.50 -0.20 -1.00 -0.40 -1.50 -0.60 Strategy Short Call Strategy Short Put Market Opinion Neutral to slightly Bearish Market Opinion Neutral to slightly Bullish Market Position Sell a call Market Position Sell a put Option Strategy Credit premium received Option Strategy Credit premium received Debit/Credit Debit/Credit Profit Potential Limited to premium received Profit Potential Limited to premium received Profit Point Maximum profit point is any futures Profit Point Maximum profit point is any futures price at or below the strike price price at or above the strike price Loss Potential Unlimited Loss Potential Unlimited except to the extent that the futures price cannot fall below zero Loss Point Any futures price above the strike Loss Point Any futures price below the strike price plus the premium received price minus the premium received Break-Even Point Strike price + premium received Break-Even Point Strike price – premium received Margin Required Yes Margin Required Yes All examples throughout this guide use various strike prices assuming that the underlying contract is trading at the following prices: 4 $1,000 Gold futures, $17.00 Silver futures and $3.00 Copper futures. Options Strategy Guide for Metals Products BULL CALL SPREAD BULL PUT SPREAD Long $975 Gold Call @ $45/Ounce Long $16.50 Silver Put @ $0.50/Ounce Short $1,025 Gold Call @ $20/Ounce Short $17.50 Silver Put @ $1.00/Ounce +75 +1.50 +50 +1.00 +25 +0.50 Futures Prices Futures Prices 0 0.00 $ troy ounce $ troy ounce $ troy 925 950 975 1000 1025 1050 1075 15.5 16 16.5 17 17.5 18 18.5 Profit (+) / Loss (-) (+) / Loss Profit (-) (+) / Loss Profit -25 -0.50 -50 -1.00 -100 -1.50 Strategy Bull Call Spread Strategy Bull Put Spread Market