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Orange Juice Options Price

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Orange Juice Option Price

The futures orange juice price, and the orange juice option price is not the same thing. Option price valuation is not as straightforward as futures valuation. Option premium is comprised of intrinsic value and extrinsic value.

An option has intrinsic value if the market is trading above the strike price of a call option, or below the strike price of a put option. If an option contract has intrinsic value it is called “in the money.” If an option contract does not have intrinsic value it is called “out of the money.”

For example:

If orange juice is trading at $1.03 a $1 call option is $.03 in the money so the intrinsic value of the option is $450.

The extrinsic value of the option is its “time value.” Extrinsic value takes into account the possibility that an option may go in the money by expiration. The more time that an option has, the more extrinsic value it has. As an option approaches its expiration date, it looses value. This is called time decay. At expiration, an option has no extrinsic value so if the option is out of the money it expires worthless.

Orange juice option prices do not move in tandem with futures prices. A $.01 move in your favor in the orange juice futures markets does not necessarily equal to a $.01 increase in the orange juice option value. The amount that an option value will increase based upon a increase in its futures price is called its delta. Call option deltas are measures from 0 to 1. As an option goes from “out of the money” to “in the money” its delta increases.

For example:

If an orange juice call option has a delta of .5 and the price of the orange juice futures market increases by $.01 the value of the option will increase by $.005 or $75.

If you are a speculator with a limited amount of risk capital then orange juice options may be the best way for you to invest in the orange juice market.

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Commodity trading is not suitable for everyone. The risk of loss in trading can be substantial. This material has been prepared by a sales or trading employee or agent of Van Commodities, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Van Commodities, Inc. Research Department. Please view our Risk Disclosure.

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