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Lee:
>I am seeking advice on the following three items:
>
>1. A source to learn about "market mechanics" for options on futures.
>(CME, OIC, NFA were not much help)
>Example A: I bought a call and want to exercise it. What do I pay in
>addition to the premium already paid for the call?
In my experience, I pay a commission to exercise the
option. Naturally I need enough money in my account to enter into
the underlying long futures contract.
Mind you, I don't usually exercise options. But in thin markets
(like orange juice) it's usually better to exercise an option
simultaneously with entering an opposing position in the underlying
contract. That way you lock in a profit instead of chasing the
option around with limit orders trying to sell the option.
>Example B: I sold a call and it went in the money. What if I don't have
>the contract to deliver,
...then if the holder of the option exercises it, or the option
expires in the money, you will end up short 1 futures contract at
the strike price and you keep the proceeds of the option sale. I
have _never_ had an option on a futures contract exercised on me.
I heard it happens but everybody seems to hold them until the end.
Only with equity options have I had them exercised out from under me.
>or I have the contract at the strike price,
Do you have a long or short contract? If the option goes into the
money, see above; you may end up offseting your long position or
having an additional short position. If it goes out of the money,
it expires worthless and you keep the proceeds of the sale.
>or I have a contract this is above the strike price?
See above. You will either sell the underlying futures contract at
the strike price, or the option will go out of the money again and
expire worthless.
>2. A book that addresses market mechanics and various strategies for
>options/futures.
Pretty much anything applicable to equity options is applicable to
futures options, except for strategies that require liquid markets.
The futures option markets aren't as liquid.
-Alex
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