MGEX CBOT Wheat Spread Options. Product Overview

Transcription

1 MGEX CBOT Wheat Spread Options Product Overview May 7, 2012

2 MGEX-CBOT Wheat Spread Options Overview - MGEX: Hard Red Spring Wheat futures listed on the Minneapolis Grain Exchange, Inc. - CBOT: Soft Red Winter Wheat futures listed on the Chicago Board of Trade Based on the spread between MGEX Wheat futures and CBOT Wheat futures Capitalize on price differentials inherent between the classes of wheat, primarily due to the varying levels of protein content. (MGEX Wheat contains13.5% higher protein on an average) Take advantage of other differences in supply and demand fundamentals between two wheat classes Provide the unique ability to execute this inter-exchange spread in a single trade. Post one margin at a single clearing house, CME Clearing Remove the need to leg into the spread positions MGEX-CBOT Wheat Spread options offer potential arbitrage opportunities as well 2012 CME Group. All rights reserved 2

3 Salient Features For more details, see Contract Specifications on page 8 1. The price spread is defined as the MGEX Wheat futures price minus the CBOT Wheat futures price 2. Three listed MGEX-CBOT Wheat Spread options: MGEX July - CBOT July MGEX September CBOT July MGEX December CBOT December 3. Trades both via open outcry on the trading floor and on CME Globex 4. The implied spread between the two wheat contracts will also be available on Globex from May 21 st, which will take out the leg risk and be used for hedging the delta exposure on the options. 5. European style exercise: option can only be exercised on the last trading day 6. Cash-settlement 7. Post one margin at CME Clearing 2012 CME Group. All rights reserved 3

4 When to Trade? If you: you have: and may expect the spread to: Because in terms of volatility and correlation. you feel: Which may cause the MGEX Wheat price to: Buy a Call The right to go long the spread Widen Volatility of MGEX/CBOT Wheat spread will increase and correlation will weaken Gain relative to CBOT Wheat Sell a Call The obligation to short the spread Narrow Volatility of MGEX/CBOT Wheat spread will decrease and correlation will strengthen Decrease relative to CBOT Wheat Buy a Put The right to short the spread Narrow Volatility of MGEX/CBOT Wheat spread will increase and correlation will weaken Decrease relative to CBOT Wheat Sell a Put The obligation to long the spread Widen Volatility of MGEX/CBOT Wheat spread will decrease and correlation will strengthen Gain relative to CBOT Wheat 2012 CME Group. All rights reserved 4

5 MGEX September - CBOT July Wheat Futures Spread November 2010 March 2012 Spreads in cents Spread (MGEX CME) Nov 10 Dec 10 Feb 11 Apr 11 May 11 Jul 11 Sep 11 Oct 11 Dec 11 Feb 12 Mar 12 Volatility (%) 25% 20% 15% 10% Volatility Spread between the two New Crop crops Correlation of 90% between contract Volatility considers: individual futures volatilities + correlation between Average spread volatility: 15% represents the maximum volatility amongst the other combinations 5% 0% Jan 11 Feb 11 Apr 11 Jun 11 Jul 11 Sep 11 Nov 11 Dec 11 Feb CME Group. All rights reserved 5

6 Spreads in cents Volatility (%) MGEX July - CBOT July Wheat Futures Spread November 2010 March 2012 Spread (MGEX CME) Nov 10 Jan 11 Feb 11 Apr 11 Jun 11 Jul 11 Sep 11 Nov 11 Dec 11 Feb 12 Apr 12 30% 25% 20% 15% 10% Realized/Historical Volatility MGEX (July) and CBOT Wheat New Crop (July)Spread Correlation of 90% between the contract Volatility considers: Individual futures volatilities + correlation between Average Spread Volatility: 12% 5% 0% Nov 10 Jan 11 Feb 11 Apr 11 Jun 11 Jul 11 Sep 11 Nov 11 Dec 11 Feb 12 Apr CME Group. All rights reserved 6

7 MGEX December CBOT December Wheat Futures Spread November 2010 March 2012 Spreads in cents Spread (MGEX CME) Jan 11 Feb 11 Apr 11 Jun 11 Jul 11 Sep 11 Nov 11 Dec 11 Feb 12 Apr 12 Volatility (%) Historical/Realized Volatility 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Feb 11 Mar 11 May 11 Jul 11 Aug 11 Oct 11 Nov 11 Jan 12 Mar 12 MGEX (Dec) and CBOT Wheat Old Crop (Dec) Spread Correlation of 90% between the contract Volatility considers: individual futures volatilities + correlation between Average spread volatility: 12% 2012 CME Group. All rights reserved 7

8 Trading Unit Price Basis Tick Size Strike Price Intervals Contract Months Daily Price Limit Last Trading Day Exercise MGEX-CBOT Wheat Spread Options Contract Specifications One MGEX-CBOT Wheat Intercommodity spread option reflects the spread between one MGEX Wheat futures contract of a specified month, and one CBOT Wheat futures contract of a specified month. The specified MGEX Wheat futures price in cents per bushel minus the specified CBOT Wheat futures price in cents per bushel. 1/8 of one cent per bushel ($6.25 per contract). Strike prices will be listed in increments of five cents per bushel. The minimum strike price range will include the strike price closest to the current MGEX-CBOT futures spread price, plus the next ten consecutive higher and the next ten consecutive lower strike prices. MGEX July - CBOT July MGEX September - CBOT July MGEX December - CBOT December The sum of the trading limits for MGEX Wheat futures and CBOT Wheat futures. There shall be no price limits on the last trading day. The last Friday which precedes by at least two business days, the last business day of the month preceding the nearest option month in the spread. For example, the option month for the MGEX September - CBOT July option is July. European-style. The buyer of an MGEX-CBOT Wheat Spread option that is in-the-money after the close on the last trade day will be cash settled to the final settlement price. Trading Hours CME Globex Open Outcry 6:00 p.m. - 7:15 a.m. and 9:30 a.m. - 1:15 p.m. Central Time, Sunday Friday 9:30 a.m. - 1:15 p.m. Central Time, Monday - Friday Ticker Symbols Exchange Rule Open Outcry: MCG CME Globex: MCW This contract is listed with and subject to the rules and regulations of CBOT 2012 CME Group. All rights reserved 8

9 For More Information: Ankita Roy / John Hill / Susan Sutherland / CME Group. All rights reserved 9

10 Disclaimer Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. The Globe Logo, CME, Chicago Mercantile Exchange, and Globex are trademarks of Chicago Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago. NYMEX, New York Mercantile Exchange, and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. CME Group is a trademark of CME Group Inc. All other trademarks are the property of their respective owners. The information within this presentation has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for any errors or omissions. Although every attempt has been made to ensure the accuracy of the information within this presentation, CME Group assumes no responsibility for any errors or omissions. Additionally, all examples in this presentation are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. Nothing herein should be construed as a trading recommendation of MGEX. Information in this publication is taken from sources believed to be reliable but is not guaranteed by MGEX as to accuracy or completeness and is intended for the purpose of information and education only. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME, CBOT, NYMEX and CME Group rules. Current rules should be consulted in all cases concerning contract specifications CME Group. All rights reserved 10