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The Option Model for the New Millennium. |
| OPTION SERVICES for COMMODITIES, CORPORATION: | |
CME Put Options
on 1 yr. Mid-Term Options on Eurodollar Index Futures
Guideline as to over and under pricing of the options.
We are not responsible for any losses a trader
may incur from trading and having seen this chart. The
actual daily values can and do go in the opposite direction
from this 6 day trimmed moving average and cross above and below the
0.0% line.
Trimmed means we look at last 6 days, throw out the high and
low, and then average the remaining 4. Comments
and analysis can be found in our
when appropriate.
How to read and use this chart.
This chart was
created by looking back at the historical over and under values of the
various parts of the option distribution curve. This curve
can be seen in any book on options. For example, we looked
at the historical values of out of the money Call options
for all available contracts. Same for Puts. Our option model can adjust any
days value to a standard day and future. We then
looked at all strike prices and selected a standard number of
strike prices at so many days to expiration. Our option model then filled in any
missing prices and gave us a total. These daily totals were
then averaged for the 4 major parts of the distribution curve
that most traders use. A ratio to the average historical
value was then established for each
part of the curve. It was found that on any given day the average values for the
in the money call and the out of the money
put were very similar most of the time for any given contract available
on that day for any commodity option. In fact we were able to
establish a standard value that all commodities could then
be compared to.
You will notice that the options, both in and out of the
money start to be over valued as we approach expiration.
That indicates that the options are not "decaying in
value" as fast as they should. Please note we do not provide
data points for options during the last two weeks before
expiration. The only traders that belong in that time frame
are floor traders and large dealer/merchants taking delivery.
Option pricing is very complicated.
Mathematically option pricing can be looked at as the result of three
3-dimensional axis nested in a stack.
Here is an explanation on how to look at what we do. We will give a
pictorial explanation of our option model. Visualize a tall and short
person standing in a boxing ring spinning a long rope between them (the floor
traders). Tied to the rope are ribbons (the strike prices). You are jumping in
that spinning rope trying to catch the ribbons. The floor traders can move
sideways and back and forth. Thus your option curve is not 2 dimensional but 3
dimensional. Our under and over priced charts try to help you cope with the
moving floor traders. As you will find from our various charts the floor traders
in the different commodity pits treat over and under pricing of options quite
differently. Just a reflection of the different personalities. The over and
under charts apply only to this first 3-dimensional axis and are based on a
static and standardized OSCC Total Option Premium. If the future and our
relative value for over or under valuing remain constant, the actual value an
option can still change due to effects found in the 3rd underlying axis. See
explanations that follow.
That could still be fairly easy to work with. However, the boxing ring is
floating in big pool of TFB. It has a big wave generator at one end. When ever
you think you have it timed, a big wave may lift you past the ribbon or drop the
floor out from underneath you just as you are starting to leap. This is the 2nd
3-dimensioal axis you are floating in. This is the market place (futures). We
can not help with the market place. Fortunately you have a Broker sitting in
your corner hollering advice as to when he thinks a wave is
coming.
Simple enough? Not quite. What neither you nor your Broker can see with the
option models you have at hand, is that the big pool you are floating in, is
suspended from a huge overhead crane. When you and your Broker have the first
and second 3-dimensional axis's figured out, the crane operator cam lift, drop,
swing or spin you around in a 3rd 3 dimensional axis. Our OSCC Total Option
Premium represents this 3rd 3 dimensional place. I am not saying there is any
thing unethical going on, or that someone is controlling all this. This is just
the total supply and demand of all the off the floor traders put together,
pushed and pulled by world macro economics.
The Dec CBT Wheat options around 2/21/04 got out of line with their normal
pattern.
This is the kind of opportunity you are looking for.
CIO1 means In the money call for January. expiring in an Back Month, i.e. 2005.
POE means Out of the money Put Front Month expirations. A = all expirations.
It has taken almost a year to put
together the program to make these calculations. With enough
time any option model can do this. Whether or not we do the
New York Exchanges depends on whether or not they get more cooperative
in supplying the expiration dates for futures and options
and on users of this site. Brokers can help with strategies to take
advantage of this chart. We, of course, are not responsible for any
decisions a trader may make using these charts.
We are not writers so if you have comments (good or bad), requests, questions, or
need an explanation of our charts Please contact us at:
Go to: Forums
visited list and contact information. We
do not redistribute your email address.
Long Euro Dollar 1 Year Mid Term Return to option charts index page
Go to Eurodollar Futures chart
Go to Eurodollar Option Premiums
Go to Eurodollar Combined chart
Go to Over & Under Priced Call Options
Go to Over & Under Priced Put Options
Email This Option Website To A Friend
We have a new
"chart explanation page" to help explain how our charts look over time.
This page includes an explanation of what these charts are and how to use them.
For a better understanding of what we do please read these
pages.
--- About Us What we found
that prompted us to develop our option program.
--- The OSCC overview of option trading.
--- The
OSCC Option Model.
--- Products
--- The Accuracy of the OSCC Option Model.
OR Go to: Forums visited
list and contact information.
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Last Updated on 10/31/2019
By Tom B
As used throughout this web site: 10/31/2019
OSCC is a trademark of Option Services for Commodities, Corporation.
CME is a registered trademark of the Chicago Mercantile Exchange, Inc.
CBT, CBT and Project Aâ are Registered Trademarks of the Chicago Board of Trade.
(c) Copyright 1999-2007 OPTION
SERVICES for COMMODITIES, CORPORATION All Rights Reserved
This site relates to option trading of commodity options and futures with strategies that buy or sell
puts and calls either long or short for profit on treasury bonds and notes, Dow Jones Index, soybean products, corn, wheat, oats, rough rice and T-Bond
options on the CBT, Chicago Board of Trade through "floor
traders". We are also doing 6 currencies from the CME, the Chicago
Mercantile Exchange, the Japanese Yen, British
Pound, Swiss Franc, the Euro FX (ECU) and the Australian and Canadian dollars.
We also do 5 agriculture products, the S&P 500, NASDAQ 100 and Eurodollars
related to European and Economic Monetary Union (EMU) interest rates. Commodities are a high risk speculative hedging investment
and traders should use brokers for trading contracts who keep
their funds and money in accounts with high rates. This site provides free commentary, and technical analysis on commodity futures
and option premiums by OSCC from our futures charts and option charts for
use by traders.
This site no longer provides free quotes, although we do provide a free commodity ticker.