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New ag contracts

Agriculture.com Staff 10/03/2011 @ 10:12am

Based on solid industry acceptance of weekly grain options, the CME Group expands its suite of specialty agricultural contracts Monday with the launch of weekly options on cattle, soybean meal and soyoil.

Meal and oil options started electronic trading Sunday, and weekly cattle options joined them Monday. All are traded in open outcry (pit trading) and on Globex, an electronic trading platform.

Meal, oil and cattle complement existing weekly options for wheat, corn and soybeans, which began trading in May. The CME also offers calendar spread options (CSOs) on selected agricultural futures, essentially combining a two-futures spread trade into one options contract.

Weekly Grain Options (WGOs) for corn, wheat and soybeans were launched May 23, and have posted more than 172,000 trades in their first four months. 

"We’re pleased with their strong performance," says Tim Andriesen, the CME's managing director for agricultural commodities and alternative investments.  “Weekly options on agricultural futures are a new innovative product that have changed the rules of the game in agricultural commodities."

Contracts Expire Weekly

Weekly listings mean, for cattle and grains, there is now an options contract expiring every Friday of the year. (If Friday is a holiday, expiration falls on the previous business day.)

The CME has long offered "standard" options, which track the futures months. That is if there's a September futures, there's a September option. If there's no October futures, there's no October option. At least not a traditional "standard" option.

Since futures are staggered -- skipping some months -- the CME added "serial" options several years ago to fill in the missing months. These "fill-in" options are listed only when a futures contract is within a couple of months of expiration.

Weekly options fill in the last month of a futures contract's life with an option contract that expires every Friday. The result is that the last month of trading for a given futures contract shows at least four options expiring on successive Fridays. Three of those options are new "weekly" listings, and the other one is a previously existing "standard" or "serial" option.

Although the contract specifications for all 52 weeks are the same, there's a key difference between the expiration of a standard option and a weekly option. Weekly options that expire after a standard option are assigned a different underlying futures contract. 

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