Any Options on Futures experts here?

Question

I've been thinking of trying options on Futures. I currently make around 80% - 100% per year return on options on stocks. I usually use a calendar spread on stocks (ie long 2 yr or so. LEAP, right now Jan2009 and selling close (Jan2007) in calls but at a higher strike so that I am profitable if called)

So, let's say I buy a call on 1300 silver at Decembe 2007 for $12205 or 2.44 pr oz.(today's price) . So, by my understanding, I'd have to sell at least 1550 calls. Feb 2007 are 915 or .18c per onze. Is the way I am working it corect?

Also, if I'm called out of the Feb 2007 1550 by chance if silver rises to that price, will I perhaps need to deliver silver, or will I have a chance to exercise my 1300. Or, finally are 1550 silver and 1300 silver so different that a 1300 can't cover a 1550. Those might be weird questions, but I want to understand how much my knowledge of stock options really play into the futures world.

How would this strategy work on futures? I'll use examples:

Answer 1

These metal options and is not different from stock options. If it is American options which very likely it is then when your 1550 goes high you might be conditionaly assigned or called then you can reverse your bought position on the LEAP by reversing the LEAP which will be in the money then to even out. If it is European option then you cannot reverse your bought position then you will have to write or sell again at the higher price and hope for the best that it will not go higher.

Answer 2

first of all, I prefer using black-scholes model for option pricing and it works well for futures options

now, with options you have the option to buy (call) or sell to someone else at a higher price if the underlying asset goes down (put) - so you're not delivering silver or anything else to anyone... you might be confusing futures and options contracts... in futures THEN you would need to deliver (usually not the commodity itself though, but the money for it's market value at that time)

you'd be smart to try demo futures and demo futures options before you actually get full swing into this on live trading

Answer 3

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