Options Trading Pack

Options Trading Pack
Introduction to Options on Futures Trading
Options Trading Strategies
Trading with Weekly Options
rjofutures.rjobrien.com 800-441-1616
A division of R.J. O’Brien
Introduction to
Options on
Futures Trading
A basic understanding to
consider adding options on
futures to your trading plan
Important Information About
Trading Futures and
Options on Futures
This communication is intended as a solicitation. Futures trading involves the substantial risk of loss
and is not suitable for all investors. Trading advice is based on information taken from trades and
statistical services and other sources which RJ O’Brien believes are reliable. We do not guarantee
that such information is accurate or complete and it should be relied upon as such. Trading advice
reflects our good faith judgment at a specific time and is subject to change without notice. There
is no guarantee that the advice we give will result in profitable trades. All trading decisions will be
made by the account holder. Past performance is not necessarily indicative of future trading results.
When analyzing option strategies, it is important to take into account the commission and
fees associated with making a trade. Similar to trading futures, each contract executed
in an option strategy is charged commission and fees. Commissions and fees from
brokerage firms can be up to $99 per round turn with the vast majority of people paying
significantly less. Your actual charges may vary based on the service level you choose.
The two primary factors investors tend to overlook when trading options include:
• Each contract traded is charged a commission. This is often misinterpreted with a spread or
strategy as each contract within a spread or strategy is charged a commission. If you trade
one bull call spread, your account would be charged for 2 contracts rather than 1 spread.
• Customers often try to sell or collect premium on options that are far out of the
money with the belief that they are collecting “easy money.” The further away an
option strike price is from the current market price, the lower the value of the option.
Make sure that you are not paying more in commission and fees than what you are
collecting. Keep in mind that until an option expires, you do hold risk in the positions.
Is the net premium collected after paying commission and fees worth the risk?
Table of Contents
Getting Started.........................................................................................................................4
Basics of Options on Futures....................................................................................................5
Why Trade Options on Futures?............................................................................................5
What are Options on Futures?..............................................................................................6
Buying vs. Selling Options on Futures...................................................................................7
Options Terminology..........................................................................................................7
Reading Options Quotes...........................................................................................................9
Basic Options Trading Strategies............................................................................................ 10
Buying options on futures.................................................................................................. 10
Selling options on futures.................................................................................................. 11
Additional Resources ............................................................................................................. 13

Getting Started
Options on futures let you participate in the futures markets with defined risk.
Yet, you still can take advantage of price with descriptions and terminology. And, we’ll
movement opportunities commodities, stock conclude with examples of four basic trading
indices, foreign currencies and interest rates strategies.
with an added layer of versatility that goes
A list of guides from RJO Futures covering
beyond simply buying if prices are going up or
more specific futures trading topics—as well as
selling if prices are going down.
additional resources for learning the basics—is
RJO Futures, the premier brokerage firm for at the end of this document.
futures traders, has specialized in serving
Please feel free to contact us to answer any
futures traders for more than 100 years.
questions you have about trading options
Everyone on our team is devoted to providing
on futures. Any of our experienced team can
the service you need to become a successful
explain the principles and strategies in this
futures trader.
guide, and help you understand if trading
This guide explains the basics of trading options options on futures is right for you.
on futures. We’ll start from the beginning
4
Basics of Options on Futures
Options on futures and options on stocks have the same parameters.
They are contractual agreements that provide going up” and “sell if it’s going down.” Many
the right, but not the obligation, to buy or sell traders like the defined-risk aspect of options,
an underlying asset at a certain date at a set for example. But, it doesn’t mean options are
price. The premium is the price paid for that entirely without risk. You have to get direction,
right. In stocks, the underlying asset is 100 time frame, and amount of move right in order
shares of stock. In futures, the underlying asset to profit.
is a futures contract in the same expiration
Here’s some of reasons traders choose
month as the option.
options on futures:
Before equity options were first listed on the
Defined risk. Unlike futures trading, in which
Chicago Board Options Exchange in 1973, they
all positions have unlimited risk, you can
were traded in an over-the-counter market, with
define the amount of risk you take when you
each contract having unique terms. It was up to
buy options on futures. And, often option
buyers and sellers to find each other, and they
premiums require less cash outlay than margin
did so via newspaper ads.
requirements on a futures position. However,
Exchange-traded equity options took the idea if you sell options on futures, your risk is
of standardizing strike price, expiration, size and unlimited, just as it is in trading futures.
other contract terms from the futures markets.
Leverage. Like futures, your money works
Options on futures were introduced in October
hard for you in options trading because of the
1982, with options on U.S. Treasury bond
leverage involved. The premium paid when you
futures at the Chicago Board of Trade.
buy an option is only a small percentage of the
Why Trade Options on Futures? value of the underlying futures contract, and
varies based on several factors including time
Options are a great way to fine-tune your
to expiration, market volatility and underlying
trading approach beyond simply “buy if it’s
price.
5
Generate income. Selling call options against You can liquidate an options position in one
a long futures position, a strategy known as a of three ways:
covered call, provides extra income because
Offset. This reverses the original transaction
you collect the option premium. If the market is
to exit the trade, and is the most common way
flat to lower, you likely will be able to keep both
to liquidate a position. If you had bought an
your futures position and the option premium.
option, you would sell the same strike price and
If the market rallies, you may have to deliver
contract month to offset your original position;
your long futures position to the option buyer at
an option seller would buy an option with the
the strike price; your profit will be limited to the
same strike price and contract month.
options premium collected.
Exercise. You exercise an option when you

What are Options on Futures?
choose to take a position in the underlying
There are two types of options: futures market that is your right by virtue of your
option. Option buyers assume a long position in
Calls. These give the buyer the right, but
futures by exercising a call or a short position in
not the obligation, to buy (go long) a futures
futures by exercising a put.
contract at a certain price (strike price) prior to
option expiration. You would buy a call if you Expiration. If an option is not offset or
think prices will rise. exercised, it eventually expires. The buyer then
loses all of the premium paid, while the seller
Puts. These give the buyer the right, but not
profits by the amount of premium collected.
the obligation, to sell (go short) the underlying
Both buyer and seller may be charged
futures market at a certain price (strike price)
commissions and fees.
prior to option expiration. You would buy a put
if you think prices will fall.
6
Buying vs. Selling Options on Futures
Most individual traders tend to buy options because they know their maximum risk (premium paid)
upfront. But, selling options can give you opportunities to profit because you collect and keep the
premium the buyer pays if the option expires worthless or decreases in value. However, there is
potentially unlimited risk in selling options.
Understanding Buying vs. Selling Options

Buy Options (Long) Sell Options (Short)
Make profits with call options only in rising markets. Make profits with short calls in flat to falling markets.
Make profits with put options only in falling markets. Make profits with short puts in flat to rising markets.
Unlimited maximum gain for a long call position as prices Maximum gain for short options equals total of premiums
rise. Maximum gain for long puts can also besignificant, received.
but underlying price cannot fall below zero.
Maximum potential loss for long options equals total of Maximum loss for short options is unlimited.
premium paid.
Options Terminology Volatility. The amount of price movement in

the underlying market over a certain period
Like learning anything new, you’ll want to of time. Prices that experience large swings
become familiar with the lingo that pertains to up and/or down have greater volatility, which
options trading. translates into greater risk and potential reward
as well as a higher premium.
Strike price. The price at which the underlying
futures contract can be exercised, thus why it Intrinsic value. The difference between the
is also known as the “exercise price.” The strike underlying futures contract price and the option
price is the biggest factor in determining the strike price. Intrinsic value is positive when
price (premium) of an option. the option is in-the-money. Intrinsic value is
negative when the option strike is either at-the-
Time value. The portion of the option premium
money or out-of-the-money.
based on the amount of time remaining until
the option contract expires. In general, the more Call options with a strike price below the
time until an option’s expiration, the greater the current price of underlying futures contracts
time value. are said to have intrinsic value. Put options
7
Call Option Put Option
In-the-money Strike < Futures Strike > Futures
At-the-money Strike = Futures Strike = Futures
Out-of-the-money Strike > Futures Strike < Futures
with a strike price above the current price of the of-the-money when futures are trading below
underlying futures contract also have intrinsic $25. A put option is out-of-the-money if the
value. strike price is below the price of the underlying
futures. Out-of-the-money options also have no
In-the-money. An option is in-the-money when
intrinsic value. They expire worthless if they are
it has reached even one tick beyond its strike
out-of-the-money on expiration day.
price to the positive. A call option is in-the-
money if the strike price is below the price of Break-even. The price at which an option’s cost
the underlying futures contract. So, if a call is equal to the proceeds acquired by exercising
option strike price is $25 and the underlying the option. The break-even point is the same for
futures market price is $35, then the intrinsic both the buyer and seller of an option.
value of the call option is $10. A put option is in-
Call option
the-money if the strike price is above the price
of the underlying futures. In-the-money options Strike Price + Premium + Commission and Fees*
have positive intrinsic and time value. = Break-even
At-the-money. An option is at-the-money If the futures price is above break-even for a call
if the strike price is at the same price as the option, it means a profit for the buyer and loss
underlying futures contract. At-the-money for the seller.
options have only time value—no intrinsic
value. Put option
Out-of-the-money. An option is out-of-the- Strike Price - Premium - Commission and Fees*

money when it has reached even one tick = Break Even
beyond its strike price to the negative. A call
If the futures price is below break-even for a put
option is out-of-the-money if the strike price is
option, it means a profit for the buyer a loss for
above the price of the underlying futures. For
the seller.
example, a call option with a $25 strike is out-
*Commissions and fees from brokerage firm can be up to $99 per round turn with the vast majority of people paying significantly less. Your actual charges may vary
based on the service level you choose. See disclaimer on inside cover for detailed discussion.
8
Reading Options Quotes
When you’re looking at a page of quotes for options on futures, you’ll need to know
a few basics.
Type Symbol Strike Open High Low Last Change DTE

Call ES U3C1650 1650 47.00 52.25 47.00 52.25 +4.00 113
Put ES U3P1650 1650 56.25 57.00 52.00 52.00 -5.00 113
First, the trading symbol will designate the Strike: The strike price (also known as exercise
market, the contract month/year, whether it is price) of an option.
for a call or a put and the strike price.
Open: The price where the option opened on
Second, the prices quoted are for the premium the trading day.
you pay or collect, depending on whether you
High: The highest price the option traded on
buy or sell the option. To know how much
this day.
cash outlay (or income) is involved, multiply
the premium price by the market’s standard Low: The lowest price the option traded on this
multiplier. day.
Here’s an example of how you’ll see options Last: The most recent trade price for the
on futures quoted: option. (For the E-mini S&P 500 in this example,
multiply the “last” price by $50 to get the total
Type: Call or Put. These give the buyer the
dollar value of the premium.)
right, but not the obligation to buy (call) or sell
(put) the underlying futures market at the strike Change: How much the premium price of the
price prior to expiration. option changed vs. the previous day’s closing
price.
Symbol: This includes the symbol for the
commodity (ES), the symbol for the expiration DTE (Days To Expiration): Number of days
month (U3) and the strike price (1650). until the expiration of this option.
9
Basic Options Trading Strategies
With options on futures, you gain flexibility in your trading because of the many
strategies available for bearish, bullish or neutral market environments.
Buying Options on Futures to hold your long option, which should track
movement in the underlying futures market
As a buyer of an option, you pay a premium
fairly closely because it is in-the-money.) Here’s
upfront to own the right to take the underlying
how your profits would be calculated (net of
futures position at the strike price at any time
fees and commissions*):
before the option expires. The premium paid is
your maximum risk. As for profit potential, you Futures Price 105.00
have unlimited potential if you buy a call; if you - Strike Price 95.00
buy a put your maximum profit potential is the 10.00
difference between the strike price and zero. - Premium Paid 3.90
Profit 6.10 x $1,000 = $6,100
Buy a Call
For each dollar that crude oil increases, your
October crude oil 95 call trading at $3.90
profit increases $1,000. As there is theoretically
With October crude oil futures trading near no limit to how high the price of crude oil could
$95 per barrel, you think prices will keep going go, there is no limit to your potential profit. But,
up but would like to define the amount of once you assume the futures position, your risk
risk you take in the position. So, you buy an is unlimited.
October 95 call trading a $3.90, which means
Buy a Put
you pay $3,900 (premium times 1,000 barrels
per contract) upfront. This amount is your October crude oil 95 put trading at $5.90
maximum risk.
With October crude oil futures trading near $95
If October crude oil rises in price to $105, you per barrel, you think prices will fall but would
can exercise your call options and assume a like to the define the amount of risk you take
long position underlying futures from $95, the in the position. So, you buy an October 95 put
strike you purchased. (You also could continue trading at $5.90, which means you pay $5,900
10
(premium times 1,000 barrels per contract) It is important to recognize that option sellers
upfront. This amount is your maximum risk. are much more exposed to risk than option
buyers. If you write a call option, you are
If October crude oil falls in price to $85, and
exposed to unlimited potential losses. The
you decide to exercise the option, you would
potential losses with writing a put option are
assume a short position in October futures at
limited only by the difference between the strike
$95, the strike you purchased. (You also could
price (minus what you receive in premium) and
continue to hold your long option, which
zero.
should track movement in the underlying
futures market fairly closely because it is in- Sell a Call
the-money.) Here’s how your profits would be
October crude oil 95 call trading at $3.90
calculated (net of fees and commission*):
You think crude oil prices are at a peak. If

Strike Price 95.00
- Futures Price 85.00 you sell the October 95 call at $3.90, you will
10.00 receive $3,900 (strike price times 1,000 barrels

- Premium Paid 5.90 per contract) into your account. This is your
Loss 4.10 x $1,000 = $4,100 maximum profit potential (net of commissions
and fees) if the option expires worthless, i.e.,
For each dollar that the price of crude oil drops, under the $95 strike price.
your profit increases $1,000. However, if you
assume a futures position rather than hold your However, if October crude oil rallies to $105
option and offset it to take profit, you will be and the option buyer exercises the option, you
exposed to unlimited risk. will be assigned a short position in October
futures at $95, the strike price. Here’s how
Selling Options on Futures you loss would be calculated (net of fees and
commission*):
As an option seller (also known as an option
writer), you receive cash premium upfront, Futures Price 105.00
which equals your maximum profit potential - Strike Price 95.00
(net of commissions and fees) if the option were 10.00
to expire worthless. If your option is exercised - Premium Received 3.90
by the option buyer, you will then hold a short Loss 6.10 x $1,000 = $6,100
futures position at the strike price.
11
For each dollar that crude oil increases beyond ADDITIONAL
$105, your loss increases $1,000. As there is RESOURCES
theoretically no limit to how high crude oil
prices could rise, there is no limit to your
potential losses until you would exit your short
futures position with an offsetting purchase.
Sell a Put
October crude oil 95 put trading at $5.90
You think crude oil prices have found a bottom

near $95 per barrel and likely will rise before
expiration. You sell an October 95 put trading at Click for your RJO
Futures PRO demo!
$5.90 and receive $5,900 of premium into your An exclusive and
account. This is your maximum profit potential. sophisticated online
trading platform
However, if October crude oil futures fall to $85, like no other with
integrated tools to
and the option buyer exercises the option, you
seamlessly trade and
will be assigned a long October futures position monitor the markets.
at $95. Your loss would be calculated as follows Test drive a demo
today with a Free 100K
(net of fees and commission*):
simulated account
with real time data &
Strike Price 95.00 execution.
- Futures Price 85.00
10.00 Or, call 800-441-1616
to request your free
- Premium Received 5.90 demo.
Loss 4.10 x $1,000 = $4,100
For each dollar that crude oil drops, your loss

increases by $1,000, unless you decide to exit
your futures position with an offsetting sale.
12
Additional Resources
Thank you for the opportunity to provide you with this educational material. Anyone can offer
online trading in online markets. But RJO Futures is not just anyone. We are specialists devoted
to delivering the best possible trading experience for our clients. Whether you want to trade on
your own, tap into the experience of our brokers or let a professional money manager make
the calls, you can do it all at RJO Futures, the premier provider of futures brokerage services.
Open an Account Easily and Quickly:

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11
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© Copyright 2015 R.J. O’Brien & Associates, LLC
0815
Options Trading
Strategies
Common strategies for
trading options on futures for
any market outlook.
Trading Futures and
Options on Futures
Table of Contents
Getting Started.......................................................................................................................................................4
Strategies at a Glance...........................................................................................................................................6
Bullish Market Outlook

Long Bull Call Spread.....................................................................................................................................7
Ratio Bull Call Spread.....................................................................................................................................8
Bearish Market Outlook

Long Bear Put Spread.....................................................................................................................................9
Ratio Bear Put Spread..................................................................................................................................10
Neutral Market Outlook

Credit “Short” Bear Put Spread..................................................................................................................11
Credit “Short” Bull Call Spread...................................................................................................................12
Calendar Call Spread....................................................................................................................................13
Short Straddle................................................................................................................................................14
Short Strangle................................................................................................................................................15
Increased Volatility Outlook

Long Straddle.................................................................................................................................................16
Long Strangle.................................................................................................................................................17
Additional Resources..........................................................................................................................................18
Getting Started
This guide focuses on some of the most popular strategies used to trade options
on futures. It provides an overview of what positions to take to execute your market
outlook strategy as well as the potential risks and rewards.
Many traders turn to options for their leveraging Please note that the strategies are not current
power, limited risk, and potential for higher market recommendations. In any option
returns. And, if you already have experience strategy, the underlying price, market volatility,
with options on stocks, then getting started with interest rates, and time value (days until
options on futures might not be very difficult at expiration) all contribute to its value in
all. The principles of options trading—limited your account.
risk when purchasing options, unlimited
risk when selling and the ability to trade in a IF YOU ALREADY HAVE EXPERIENCE WITH OPTIONS
neutral market—apply to both. You just have to ON STOCKS—GETTING STARTED WITH OPTIONS ON
understand the unique characteristics of having FUTURES MIGHT NOT BE DIFFICULT AT ALL.
a futures contract as the underlying asset rather
Risks of Trading Options
than a stock that never expires.
The risks of trading option strategies are
Reading the Risk/Reward often underestimated due to the instrument’s
Profile Charts inherent “limited risk” profile when buying.
In the risk/reward profile charts accompanying However, just because your risk might be
each strategy, the red line depicts the strategy’s limited to the premium you paid for an option
value when it is initiated. The green line doesn’t mean you won’t lose money.
illustrates the value of the option strategy at
Traders often refuse to “cash in” prior to
expiration, net of commissions and fees. As
expiration, and wind up losing their entire
time value decays, the red line and green line
investment as the option expires worthless.
gradually converge—assuming volatility and
And, of course, your risk is entirely unlimited if
interest rates stay the same until expiration. The
you sell options outright.
X-axis is the underlying price of the contract.
The Y-axis is the potential reward/risk for each
strategy in price units.
4
Option Strategies Ideal for the Margins on Unlimited-Risk
Time-Challenged Option Strategies
If you have limited time to watch the markets Some option strategies have unlimited risk,
during the trading day, limited-risk option just like futures. And, just like futures, those
strategies may be just what you are looking for strategies will require putting up margin
because they let you participate without the money to carry the position. These margin
exposure inherent in holding open requirements can change as market conditions
futures positions. change and the underlying price fluctuates.
However, no matter whether you’re trading Therefore, if you are trading an unlimited-risk
options or futures, you should always be aware option strategy, you should always maintain
of the underlying market, and analyze possible plenty of excess margin in your account to avoid
trend changes to help time entry and exit levels the risk of becoming overleveraged. Your
for your strategy. Working with an RJO Futures RJO Futures broker can provide current
broker can also help you monitor the market. hypothetical margin requirements.
ADDITIONAL RESOURCES
Click for your RJO Futures guide, Introduction to

Options Trading for more detailed examination of
options trading.
Or, call 800-441-1616 to request your free copy.
5
Strategies at a Glance
The beauty of trading options is that you can custom-design a strategy to

fit your market outlook.
1. Use this guide to pick a strategy that fits strategies, there is just as much risk as if
with your market outlook. With options, you held an outright futures position.
there’s a strategy for whether you are 3. Select the appropriate contract months
bullish, bearish, or neutral the market— and strike prices for your strategy. If you
volatility, too! need advice, an RJO Futures broker would
2. Be sure you understand the Risk and be happy to assist you.
Reward parameters that accompany
each strategy. Note that in some options
Market Outlook Option Strategy Risk Maximum Reward

Bullish Buy a Bull Call Spread Premium paid Difference between call option strike
prices minus premium paid
Ratio Call Spread Unlimited if market rises above the Upside maximum profit is limited
sum of the profit and the higher strike by the difference in strikes minus
price premium paid
Bearish Buy a Bear Put Spread Premium paid Difference between put option strike
prices minus premium paid
Ratio Put Spread Unlimited if market falls below the Upside maximum profit is limited
difference between the lower strike by the difference in strikes minus
price and the profit premium paid
Neutral Sell a Bear Put Spread for neutral/ Difference between put strikes prices Premium received
bullish minus premium received
Calendar Call Spread for neutral/ Premium paid for long call minus Premium received for short call
bullish premium received for short call
Sell a Bull Call Spread for neutral/ Difference between call strike prices Premium received
bearish minus premium received
Short Straddle Unlimited outside of strikes plus Premium received (exiting the trade
premium received prior to expiration may reduce both
risk and reward)
Short Strangle Unlimited outside of strikes plus Premium received
premium received
Increased Volatility Long Straddle Premium paid Unlimited beyond strikes minus
premiums paid
Long Strangle Premium paid Unlimited beyond strikes minus
premiums paid
6
Bullish Market Outlook
If you expect the market to rally, take a look at two option strategies to see which one might work for you.
Buying a bull call spread limits your risk to the premium paid upfront plus commission and fees. A ratio call
spread might be the ticket if you believe the market won’t climb higher than your upper strike price.
Long Bull Call Spread Example:

(Limited risk) Buy 1 December Corn 550 call at 40 1/2
Buying and selling calls allows investors to Sell 1 December Corn 600 call at 22 1/2
capture potential profit in a bullish market, with Days to expiration: 166
your risk limited to the net premium paid. Net premium paid = 40 1/2 – 22 1/2 = 18 cents
1 cent = $50
In a bull call spread, you simultaneously buy
Net premium paid (Maximum Risk) = 18 cents x $50 = $900 +
(pay premium) a lower-strike call and sell commission and fees*
(collect premium) a higher-strike call in the Maximum Profit Potential = 600 – 550 = 50 cents x $50/cent = $2500 -
same contract month. The lower-strike call will Net Premium Paid
always be pricier than the higher-strike call
because it has higher odds of being in-the-
money at expiration.
Breakeven (not including Value based on days to Value at expiration

commission & fees*) expiration in example
7
Ratio Bull Call Spread Example:
(Unlimited risk) Buy 1 December Crude Oil 9500 call at 535
In a ratio call spread, you buy a nearby call and Sell 2 December Crude Oil 10500 calls at 155
sell multiple higher-strike calls in the same Days to expiration: 159
contract month. This strategy is ideal if you Net premium paid = 535 – (155 x 2) = 225
believe that the market is likely to rally, but will 1 tick = $10
not rise beyond the higher strike price. Net premium paid = 225 x $10 = $2250 + commission and fees*
Maximum Profit Potential = 10500 – 9500 – 225 premium paid = 775
Traders often underestimate the negative effect less commission and fees* assuming the market expires at the higher
that time value to expiration and volatility can strike price
have on the spread. Therefore, it is wise to
• For a 1 X 2 ratio spread, unlimited risk exists at expiration if the
maintain plenty of excess capital to withstand market moves above the higher strike price by more than the
market movements when trading a ratio difference in strikes minus the premium paid. Maximum profit
call spread. potential exists at expiration if the underlying futures contract
is trading at the higher strike price.
• 10500 (higher strike) – 9500 (lower strike) – 225 (premium paid)

= 775 + 10500 = 11275 less the commission and fees*. Unlimited
risk of loss exists at expiration on a close above 11275 less
commission and fees*.

8
Bearish Market Outlook
If you think the market is going lower, check out these two option strategies—buying a bear put spread
and the ratio put spread.
Long Bear Put Spread Example:

(Limited risk) Buy 1 December Corn 550 put at 43 3/4
Buying one put and selling one put lets you Sell 1 December Corn 500 put at 21 1/4
capture potential profit from a bearish price Days to Expiration: 166
move, yet limit your risk to the net premium Net premium paid = 43 3/4 - 21 1/4 = 22 ½ cents
paid. 1 cent = $50
Net premium paid (Maximum Risk) = 22 ½ cents x $50 = $1125 +
In a bear put spread, you simultaneously buy commission & fees*
the higher-strike put and sell the lower-strike Maximum Profit Potential = 550 – 500 – 22 ¼ premium paid = 27 ¾
put. The higher-strike put will always be worth cents = $1387.50 less commission and fees*
more than a lower-strike put, because its odds
of expiring in-the-money are higher.

9
Ratio Bear Put Spread Example:
(Unlimited risk) Buy 1 December Crude Oil 9000 put at 350
In a ratio put spread, you buy a nearby put Sell 2 December Crude Oil 8000 puts at 139
and sell multiple lower-strike puts in the same Days to Expiration: 159
contract month. This strategy is ideal if you Net premium paid = 350 – (139 x 2) = 72
believe that the market is likely to decline, but 1 tick = $10
will not drop beyond the lower strike price. Net premium paid = 72 x $10 = $720 + commission & fees*
Maximum Profit Potential = 9000 – 8000 – 72 premium paid = 928 less
Traders often underestimate the negative commission and fees* assuming the market expires at the lower
effect that time value to expiration and volatility strike price
can have on the spread. Therefore, it is wise

• For a 1 X 2 ratio spread, unlimited risk exists at expiration if the
to maintain plenty of excess capital to market moves below the lower strike price by more than the
withstand market movements when trading a difference in strikes less the premium paid. Maximum profit
ratio put spread. potential exists at expiration if the underlying is trading at the
lower strike price.
.
• 9000 (higher strike) – 8000 (lower strike) - 72 (premium paid)
= 928. Unlimited risk of loss exists at expiration if the market is
trading below 8000-928=7072 plus commission and fees*.

10
Neutral Market Outlook
With “neutral” option strategies, you can potentially profit while prices move sideways in a trading range.
And, you can create a limited-risk strategy that has just a hint of bullish/bearish bias.
Credit “Short” Bear Put Spread Example:

(Neutral/bullish with limited risk) Sell 1 December Corn 550 put at 43 3/4
Selling and buying a put lets you capture Buy 1 December Corn 500 put at 21 1/4
potential profit from a bullish price move, yet Days to Expiration: 166
limit your risk to the net premium received. Net premium received = 43 3/4 - 21 1/4 = 22 ½ cents
1 cent = $50
In a short bear put spread, you simultaneously
Net premium received (Maximum Profit) = 22 ½ cents x $50 = $1125 –
sell the higher-strike put and buy the lower- commission & fees*
strike put in the same contract month. The Maximum Risk = 550 – 500 – 22 ¼ premium paid = 27 ¾ cents =
higher-strike put will always be worth more $1387.50 + commission and fees*
than a lower-strike put, because its odds
of expiring in-the-money are higher. As a
market rallies and time decays, both options
deteriorate in value.

11
Credit “Short” Bull Call Spread Example:
(Neutral/bearish with limited risk) Sell 1 December Corn 550 call at 40 1/2
Selling and buying a call lets you capture Buy 1 December Corn 600 call at 22 1/2
potential profit from a bearish price move, yet Days to expiration: 166
limit your risk to the difference in strike prices Net premium received = 40 1/2 – 22 1/2 = 18 cents
less the net premium received. 1 cent = $50
Net premium received (Maximum Profit) = 18 cents x $50 = $900 –
In a short bull call spread, you simultaneously commission and fees*
buy the higher-strike call and sell the lower- Maximum Risk = 600 – 550 = 50 cents * $50/cent = $2500 – $900 +
strike call. The higher-strike call will always be commission and fees*
worth less than a lower-strike call, because its
odds of expiring in-the-money are lower.

12
Calendar Call Spread Beware that a “squeeze” on the nearby
(Neutral/bullish with limited risk) underlying futures contract could negatively
impact the spread relationship as well,
The calendar call spread involves buying and
which could reduce profitability and create
selling two calls in different contract months.
additional risk.
When the options have the same strike price it
is called a “horizontal” spread.
In this strategy, you sell the nearby option Example:

and collect premium, which offsets the cost of
Sell 1 September Crude Oil 9600 call at 346
buying the more distant option with more time
Buy 1 December Crude Oil 9600 call at 475
value. This is a limited-risk strategy because
Days to Expiration of the December option leg: 159
the long option should retain some extrinsic
Net premium paid = 475 – 346 = 129
and time value. At expiration of the spread, the
1 tick = $10
maximum profit potential would be the value of
Net premium paid = 129 x $10 = $1290 + commission and fees*
the long option minus the net premium paid for
Maximum Profit is Unlimited
the spread. Maximum Risk is Unlimited

13
Short Straddle Example:
(Unlimited risk) Sell 1 December Crude Oil 9500 call at 540
A short straddle consists of selling a call and Sell 1 December Crude Oil 9500 put at 540
put with the same strike simultaneously in the Days to Expiration: 159
same contract month. A short straddle is ideal Net premium received = 540 + 540 = 1080
for markets with high volatility that are likely to 1 tick = $10
trade in a longer-term range and decrease in Net premium received = 1080 x $10 = $10,800 - commission and fees*
volatility. Unlimited risk in bull market above = 9500 + 1080 = 10580 +
commission & fees*
Your risk is unlimited on either the call or the Unlimited risk in bear market below = 9500 – 1080 = 8420 -
put at the point the market exceeds your strike commission & fees*
price (to the upside for the call; to the downside
for your put) plus the premium collected.
Your maximum reward is all of the premium
collected if the underlying market expires at
your strike price.

14
Short Strangle Example:
(Unlimited risk) Sell 1 December Gold 1600 call at 11.10
A short strangle—simultaneously selling a call Sell 1 December Gold 1200 put at 19.20
and a put with different strike prices—is ideal Days to Expiration: 169
for markets with high volatility that are likely to Net premium received = 11.10 + 19.20 = 30.3
trade in a longer-term range with a decrease 1 tick ($0.10) = $10 x 10 ticks/point = $100
in volatility. Net premium received = 30.3 x $100 = $3030 - commission and fees*
Unlimited risk in bull market above = 1600 + 30.3 = 1630.3 + commission
However, your risk is unlimited if the market & fees*
moves above or below your strike prices, plus Unlimited risk in bear market below = 1200 – 30.3 = 1169.7 -
the total premium collected. Maximum profit commission & fees*
potential exists if the market closes between
the strikes at expiration.

15
Increased Volatility Outlook
Embrace the potential for increased volatility in the markets with these two limited-risk option
strategies—the long straddle and long strangle.
Long Straddle Example:

(Limited risk) Buy 1 December Crude Oil 9500 call at 540
A long straddle—simultaneously buying a call Buy 1 December Crude Oil 9500 put at 540
and put with the same strike price—is ideal for Days to Expiration: 159
tightly consolidated markets with low volatility Net premium paid = 540 + 540 = 1080
and the likelihood of making a breakout on 1 tick = $10
increased volatility. Your risk is limited to the Net premium paid = 1080 x $10 = $10,800 + commission and fees*
premium paid for both the call and the put. Unlimited reward in bull market above = 9500 + 1080 = 10580 -
Your maximum risk would be if the market commission and fees*
expired at your strike price. Unlimited reward in bear market below = 9500 – 1080 = 8420 +
commission and fees*

16
Long Strangle Example:
(Limited risk) Buy 1 December Gold 1600 call at 11.10
Simultaneously buying a call and put with Buy 1 December Gold 1200 put at 19.20
different strike prices—a long strangle—is Days to Expiration: 169
ideal for range-bound markets trading at low Net premium paid = 11.10 + 19.20 = 30.3
volatility that are expected to break out of the 1 tick ($0.10) = $10 x 10 ticks/point = $100
range and increase in volatility. Your risk is Net premium paid = 30.3 x $100 = $3030 + commission and fees*
limited to the premium paid for both the call Unlimited reward in bull market above = 1600 + 30.3 = 1630.3 +
and the put. Your maximum risk occurs when commission and fees*
the market closes at or between your two strike Unlimited reward in bear market below = 1200 – 30.3 = 1169.7 -
commission and fees*
prices at expiration. Rewards begin when the
market trades either above or below your strike
prices by the amount of premium paid.

17



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0815
Trading With
Weekly Options
A basic understanding of weekly

options, their characteristics, and
how to implement weekly options
into your trading strategy.
Trading Futures and
Options on Futures
Table of Contents
Getting Started................................................................................................ 1
Basics of Options on Futures........................................................................... 2
Basics of Weekly Options................................................................................. 4
Characteristics of Weekly Options .................................................................. 5
Advantage of Weekly Options.......................................................................... 6
Markets Currently Offering Weekly Options..................................................... 8
Additional Resources....................................................................................... 9
Getting Started
Welcome to the RJO Futures Everyone on our team is devoted to providing

educational guide on the service you need to become a successful
Trading Weekly Options. futures and options trader.
A continual emphasis on education is at the This guide will serve as a resource to educate
center of many of the best derivative trading you on the basics of weekly options, a relatively
strategies and by requesting this guide, you new investment vehicle allowing traders to take
have distinguished yourself as an ambitious complete control of their strategies. We’ll start
student of the markets. A basic understanding from the beginning with a base description
of options on futures is essential to the of options and terminology that you will
remainder of this guide and a brief overview need to know when trading these products.
is in order before proceeding. Purchasing From here, we will introduce weekly options,
options on futures allows traders to participate their characteristics and some of the many
in the futures markets with defined risk advantages of trading weekly options.
while still allowing them to benefit from
directional price movement opportunities A list of guides from RJO Futures covering
within the commodities, stock indices, foreign more specific futures trading topics—as well as
currencies and interest rates markets. With that additional resources for learning the basics—is
understanding in mind, our goal will be to first at the end of this document.
lay out the basics of options, and then dive into
Please feel free to contact us to answer any
our topic of choice: “Weekly Options”. Let us
questions you have about trading options
begin with a brief introduction of our firm, RJO
on futures. Any one of our experienced
Futures.
team members can explain the principles
RJO Futures is the premier brokerage firm for and strategies in this guide, and help you
futures traders and has specialized in serving understand if trading options on futures is right
futures traders for more than 100 years. for you.
1
Basics of Options on Futures
Options on futures share many similar characters as stock options. They are
contractual agreements that provide the right, but not the obligation, to buy or sell
an underlying asset at a certain date at a set price.
The premium is the price paid for the right

to buy or sell assets, and is otherwise
Open: opening price
referred to as the value of that option.
The premium component of an options is comprised High: high trade of the day
of the current market price, intrinsic value, time until
Low: low trade of the day
expiration, and volatility among other things. For more
on option valuation and “The Greeks” (Delta, Gamma, Previous: previous closing price
Vega, Theta and Rho), I encourage you to contact one of
our experienced Market Strategists.
The SnapQuote function of the RJO Futures PRO trading

platform will also provide clients with the Bid/Ask, the
number of working orders at the Bid/Ask, the price of
the underlying futures contract, days to expiration,
interest rate, volatility, “The Greeks” and much more.
If you would like a further explanation of how to read
these quotes, or would like a free 2-week trial of our
RJO Futures PRO platform to practice trading weekly
options, I encourage you to contact a Market Strategist
to inquire.
This chart shows an end of week 2 Oct’16 2140 call

option in the e-mini S&P 500 market. The last trade was
7.00, which equates to $350 (7 x $50 per point). This
price is also known as the “Premium” or price. Aside
from current trade price, traders are also provided with
the following:
2
When dealing with options on it comes to trading these options, an individual
stocks, the underlying asset is 100 who generally believes that the market will rise
shares of stock. would buy a call option and an individual who
believes that the market will decline would buy
In futures, the underlying asset is a futures
a put option. Each option will have a specific
contract in the same expiration month as the
contract month, which correlates with an
option. Options are a great way to fine-tune
underlying futures contract. Additionally, each
your trading approach beyond simply “buy
option will have an “expiration date”, which is
if it’s going up” and “sell if it’s going down.”
the date at which the option either expires or
Many traders like the defined-risk aspect of
is settled. When it comes to exiting an option
purchasing options; however, that is not to
positions, an individual can choose one of
say that options are entirely without risk.
three ways: offset, exercise or expire. Traders
Along with directional expectations, the timing
looking to offset their option would sell (or buy
and magnitude of the anticipated move are
back) their long (or short) option to offset their
also crucial factors that will impact an option
position prior to options expiration. A trader
strategies profitability or lack thereof.
will exercise an option by allowing the option
Before going any further, we must first ensure a to “expire” in-the-money, at which point a long
basic understanding of option characteristics. or short futures position will be assigned to the
There are two types of options: puts and calls. A account at the given strike price. Option buyers
call option gives the buyer the right, but not the assume a long position in futures by exercising
obligation, to buy a futures contract at a certain a call or a short position in futures by exercising
predetermined price (known as the “strike a put. If an option is not offset or exercised, it
price”). A put option gives the buyer the right, eventually expires. The buyer then loses all of
but not the obligation, to sell the underlying the premium paid, while the seller profits by the
futures market at a predetermined price. amount of premium collected. Both buyer and
Options are unique in the sense that they allow seller may be charged commissions and fees.
participants the opportunity to buy (to go long)
Table A
or sell (to sell short) the option in question. For
more information on each strategy, I encourage
you to review Table A.
The strike price is the price at which the market

needs to be above (for a call) or be below (for
a put) in order for the option to be labeled
“in-the-money”. If at expiration, you are holding
an in-the-money option, you will be assigned a
long futures positions (for calls) or short futures
position (for puts) from that strike price. When
3
Basics of Weekly Options
Now that we’ve solidified a basic understanding of some of the key phrases and
concepts of options on futures, we can begin to discuss the basics of weekly options
and how weekly options can be implemented into your trading strategy.
Much like traditional options on underlying option. Weekly options are typically
futures, weekly options come in offered on four to five separate expiration
two forms: weekly put options and days, each Friday of the month. This allows
weekly call options. participants additional flexibility and precision
when it comes to constructing an option
As mentioned in our prior discussion of options,
strategy.
a weekly put option will give the option holder
the right to exercise that option should the Prior to the introduction of weekly options,
underlying futures market settle below the traders were limited to only one option
predetermined strike price of his or her put expiration date per month which, as you could
option, and vice versa. The intuition remains the imagine, significantly restricted the number
same in the sense that participants that have of possible strategies. A majority of standard
purchased a put option anticipate a decline options will expire on the third Friday of the
in the underlying futures price, and those who month and, as a result, it’ not uncommon to
have purchased a call option expect prices to see weekly options listed for week 1, 2, 4, and
appreciate in value. If at option expiration, a 5 depending on the number of Friday’s in that
weekly option holder chooses to take delivery, month and with the exception of the standard
they will be assigned the futures contract options date. In the circumstance where
that the option is based off of. For example, the standard option expires on a Friday, the
the October Weekly Options in the Emini S&P standard options contract for that month will
500 are exercised with the December futures take the place of the weekly options with the
contract. same expiration schedule.
One of the key defining features of weekly

options, which we will discuss in further
detail later in this guide, is the duration of the
4
Characteristics of Weekly Options
As you may have guessed, one of the In addition to weekly options, the CME has
defining characteristics of weekly recently introduced “Wednesday Weekly Options
options is their relatively frequent on Futures”. These options will offer mid-week
duration. expiry, as opposed to end-of-week expiry, with
the objective of providing traders with even more
Every option contract that you trade, including
flexibility in their trading strategies. At the time of
weekly options, will contain a contract month,
this publication, the Wednesday weekly options
underlying market, strike price, option type
are only available on the pit-traded S&P 500
(put/call) and expiration date. Unlike traditional
contact and the e-mini S&P 500 contract.
options that often expire the third week of every
month, weekly options allow traders to specify Weekly options present a great opportunity for
which week they would like their options to speculators in that there is little time premium
expire on, thus providing traders with much to pay for, so at or near the money options are
more precision when it comes to the execution affordable, as shown above, and your risk is
of an option strategy. Additionally, the increase defined if you are a buyer of the option. For
in expiration dates allows for more contracts to example, instead of entering a futures contract
be exchanged on a daily basis, which ultimately and placing a stop a trader can buy a close to
results in higher volume and added liquidity in the money option that will keep you in the trade
the marketplace. Given the short duration of in the market versus having a stop triggered and
these contracts, there is less of a “time premium” being taken out of your trade. This is beneficial
built into the cost of each options, which allows for traders who look to capitalize on volatility on
clients who anticipate a large directional move economic reports like, retail sales, durable goods,
to benefit from the shorter time duration. This FED announcements and monthly job reports.
concept of “time premium” has to do with the way Aside from a speculative stand point weekly
options are valued and, if you would like a further options are also great to use for hedging purposes
explanation of this concept, I encourage you to while paying little for time value.
contact one of our experienced brokers here at
RJO Futures for a further explanation of what this
means and how it can affect your option trading
strategy.
5
Advantages of Weekly Options
Similar to traditional options, near- term rally off the report. A trader could
each individual weekly option will partially hedge the upside risk that he may
identified as either a put or a call, expose himself to on his short futures contract
state a given strike prices, and also by purchasing Oct’16 end of week 1 2100 call
include which week they are to expire options that expires at the close the following
in. day (first Friday of October). With this strategy,
the participant would be “protected” in the
For example, an “end of week three September
event that the market rallies against his futures
2016 E-mini S&P 500 2100 call option” would
position. In the event that the report comes out
expire on Friday of the third week in September
bearish and the market sells off, the participants’
and would be delivered against the September
options will likely expire worthless and he or she
2016 (U’16) futures contract at expiration. Weekly
will lose the amount of premium paid for the
options are available for weeks 1-4 in every
options, which would equate to the “cost” of the
contract month which translates to numerous
hedge. The introduction of weekly options has
trading and/or hedging opportunities for traders
made strategies like the one described above
like you. The introduction of weekly options has
possible, whereas traditional options are typically
allowed traders to implement innovative and
less effective in managing such risk due to the
creative trading strategies in an effort to both
relatively infrequent expiration dates.
realize positive returns, as well as mitigate risk.
Aside from event-driven volatility hedges, weekly
Consider a situation in which a trader has a short
options on futures can allow participants to
position in the Dec’16 E-mini S&P 500 futures
hedge against anticipated adverse directional
contract and the market is currently trading at
movements of a longer term position. Say that
2100.00 at the close on Wednesday. There is a
you have established a long-term position in
significant GDP report that is scheduled to be
the futures market which you intend to hold for
released at 7:30am CST the following day and the
several years. After having done your homework
preliminary expectation is for Real GDP to come
on the trade, you expect prices of crude oil futures
in at 1.1%. Having done your due diligence, you
to appreciate over the next 6-12 months. Three
anticipate the GDP figure to come in at 1.3%,
months have passed and the oil market has
well above market expectations. Given your
appreciated 10% since you initiated the position...
positive outlook on the upcoming GDP figure,
not bad!
you are concerned that the market may see a
6
Advantages of Weekly Options
Unfortunately, one of the major oil producing Trading Weekly Options
countries recently announced that they intend
to double their oil production over the next 4-6 Thank you for giving us the opportunity to provide
weeks in an effort to satisfy demand if indeed you with this educational information on trading
oil production is ramped up; however, you don’t with weekly options. Additional information
want to completely liquidate your position in the pertaining to weekly options can be found on the
event that oil continues to appreciate in price CME Group website (www.cmegroup.com).
despite the recent news. Through the use of

In a market environment that is constantly
weekly options, you could take a long position in
changing and innovating, it is important to align
at-the-money weekly put options throughout the
yourself with a brokerage firm that understands
period in question to “hedge” your longer-term
your individual needs as a client. Anyone can offer
long oil position. In the event that the market
online brokerage accounts to meet your online
declines to your strike price, the idea is that the
execution needs, but we at RJO Futures pride
money made on the long weekly put options
ourselves in providing our customers with the
will go to offset the unrealized losses incurred on
highest level of service.
your long futures position. After the production
increase has been phased out, you anticipate oil Our Market Strategist are available to guide you
prices will rise and you no longer have a need to on your path to LEARN, DISCUSS and TRADE the
continue buying weekly puts to protect your long futures markets. Visit our website at
position against an adverse move in prices. The rjofutures.rjobrien.com today to learn more.
number of ways to implement weekly options into
your trading strategies are endless!
Aside from the additional expiration dates and

flexibility that weekly options provide traders,
these products also allows clients to trade with
the timeliness and precision that may not be
available through the use of standard options,
which traditionally only have one expiration date
per month. With that being said, participants do
need to realize that, given the short duration of
weekly options, time premiums can be magnified
and, should you find yourself holding an out- of-
the-money option, time decay can depreciate the
value of that option at an accelerated pace.
7
Markets Currently Offering
Weekly Options
As a result of the increased demand of weekly options, we’ve seen a tremendous
increase in the number of weekly options that are available to trade. At the time
of this publication, the following markets have weekly options that are tradable
through the CME:
Equity Index: Metals: Energies:

-E-mini S&P 500 (EW) -Gold (OG) -WTI Crude Oil (LO)
-E-mini Nasdaq 100 (QN) -Silver (SO) -Brent Crude-CME (BW)
-E-mini Dow (YM) -Copper (HE) -Natural Gas (Physical) (ON)
Interest Rates: Grains:

-Ultra T-Bond (UL) -Corn (ZC)
-30yr T-Bond (US) -Wheat (ZW)
-10yr T-Note (TY) -Soybeans (ZS)
-5yr T-Note (FV) -Soybean Meal (ZM)
-2yr T-Note (TW) -Soybean Oil (ZL)
Any weekly option shall be designated to expire on a given Friday, Before trading any futures or options product, you should always
provided that no weekly option shall be designated to expire check the volume and open interest for the specific contract in
on any Friday that is also the last day of trading in a standard or question to ensure sufficient liquidity to trade the product. Since
serial option (Rule 10A01.I.1). Trading in any weekly option shall weekly options on futures are relatively new products, there is a
terminate on the Friday on which such option is designated to chance that some of the specific strikes/dates may be less liquid
expire. If such Friday is not a business day, then trading in weekly than others. We encourage you to contact one of our Market
options designated for expirationon such Friday shall terminate on Strategist here at RJO Futures to ensure adequate liquidity before
the business day prior to such Friday. trading these products.
8



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and style.
11
RJO Futures
Suite 1200
800-441-1616
312-373-5478

Twitter @rjofutures
1016

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Introduction to Options on Futures Trading

Options Trading Strategies

Trading with Weekly Options

Basics of Options on Futures....................................................................................................5

Why Trade Options on Futures?............................................................................................5

What are Options on Futures?..............................................................................................6

Buying vs. Selling Options on Futures...................................................................................7

Reading Options Quotes...........................................................................................................9

Basic Options Trading Strategies............................................................................................ 10

Buying options on futures.................................................................................................. 10

Selling options on futures.................................................................................................. 11

Additional Resources ............................................................................................................. 13

Options on futures and options on stocks have the same parameters.

Exercise. You exercise an option when you

Understanding Buying vs. Selling Options

Options Terminology Volatility. The amount of price movement in

Out-of-the-money. An option is out-of-the- Strike Price - Premium - Commission and Fees*

Type Symbol Strike Open High Low Last Change DTE

You think crude oil prices are at a peak. If

10.00 receive $3,900 (strike price times 1,000 barrels

October crude oil 95 put trading at $5.90

You think crude oil prices have found a bottom

For each dollar that crude oil drops, your loss

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Facebook RJO Futures

© Copyright 2015 R.J. O’Brien & Associates, LLC

Bullish Market Outlook

Bearish Market Outlook

Neutral Market Outlook

Increased Volatility Outlook

Click for your RJO Futures guide, Introduction to

Or, call 800-441-1616 to request your free copy.

The beauty of trading options is that you can custom-design a strategy to

Market Outlook Option Strategy Risk Maximum Reward

Long Bull Call Spread Example:

Breakeven (not including Value based on days to Value at expiration

• 10500 (higher strike) – 9500 (lower strike) – 225 (premium paid)

Breakeven (not including Value based on days to Value at expiration

Long Bear Put Spread Example:

Breakeven (not including Value based on days to Value at expiration

can have on the spread. Therefore, it is wise

Breakeven (not including Value based on days to Value at expiration

Credit “Short” Bear Put Spread Example:

Breakeven (not including Value based on days to Value at expiration

Breakeven (not including Value based on days to Value at expiration

In this strategy, you sell the nearby option Example:

Breakeven (not including Value based on days to Value at expiration

Breakeven (not including Value based on days to Value at expiration

Breakeven (not including Value based on days to Value at expiration

Long Straddle Example:

Breakeven (not including Value based on days to Value at expiration

Breakeven (not including Value based on days to Value at expiration

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