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Hi David,

I was wondering if you could give an example of how an option on a futures contract would work concretely? I am having a hard time figuring out what are the actual steps on this one.

Let's say we have a call for instance - is the strike price the same as the price of the underlying futures contract at the time we buy our option?

If we exercise the option and receive as payoff the excess of the futures price over the strike price, what do we do with our long position in the futures contract, and do we make another profit when we offset it, if the price of the futures contract at maturity is higher than it was when we bought the option.

I apologize, as you can see I am very confused on this. Particularly I think grasping the disctintion between the payoff on the futures contract vs. payoff on the option itself.

Thank you David

Florence

I was wondering if you could give an example of how an option on a futures contract would work concretely? I am having a hard time figuring out what are the actual steps on this one.

Let's say we have a call for instance - is the strike price the same as the price of the underlying futures contract at the time we buy our option?

If we exercise the option and receive as payoff the excess of the futures price over the strike price, what do we do with our long position in the futures contract, and do we make another profit when we offset it, if the price of the futures contract at maturity is higher than it was when we bought the option.

I apologize, as you can see I am very confused on this. Particularly I think grasping the disctintion between the payoff on the futures contract vs. payoff on the option itself.

Thank you David

Florence

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