CHAPTER 13

Options on Futures

In this chapter, we discuss option on futures contracts. This

chapter is organized into:

1. Characteristics of Options on Physicals and Options

on Futures.

2. The Market for Options on Futures

3. Pricing of Options on Futures

4. Price Relationship Between Options on Physicals and

Options on Futures

5. Put-Call Parity for Options on Futures

6. Options on Futures and Synthetic Futures

7. Risk Management with Options on Futures

Chapter 13 1
Characteristics of Options on Physicals
and Options Futures
Recall from Chapter 12 that options are written for a pre-
specified amount of a pre-specified asset at a pre-specified
price that can be bought or sold at a pre-specified time
period.

Call Options

The buyer of a call option has the right but not the
obligation to purchase.

The seller of a call option has the obligation to sell.

Put Options.

The buyer of a put option has the right but not the
obligation to sell.

The seller of a put option has the obligation to purchase.

Chapter 13 2
 Characteristics of Options on Physicals
and Options Futures

Prices of options on futures are closely related to prices of

options on the underlying good.

Call Option on Futures

Upon exercising a option on futures, the call owner:

Receives a long position in the underlying futures at the
settlement price prevailing at the time of exercise.

Receives a payment that equals the settlement price

minus the exercise price of the option on futures.

The call owner would not exercise if the futures settlement

price did not exceed the exercise price.

Upon exercise, the call seller:

Receives a short position in the underlying futures at the

settlement price prevailing at the time of exercise.

Pays the long trader the futures settlement price minus

the exercise price.

Chapter 13 3
 Characteristics of Options on Physicals
and Options Futures

On February 1, a trader buys a call option on a MAR euro

futures contract with an exercise price of $0.44 per euro.
On February 15, the call owner decides to exercise the call
option. The futures settlement price is $.48. After
gathering all the information, the owner has:
Future settlement price = $.48
The exercise price = $.44/euro
The euro futures maturing = March
Euro contract amount = 125,000 euros
Upon exercise, the call owner:
Receives a long position in the MAR euro futures contract.

Receives a payment = F0 E

$.48 - .44 (125,000) = $5000

Upon exercise, the call seller:

Receives a short position in the euro futures.

Pay $5,000.

The traders can offset or hold their futures positions.

Chapter 13 4
 Characteristics of Options on Physicals
and Options Futures

Put Option on Futures

Upon exercising a option on futures, the put owner:

Receives a short position in the underlying futures
contract at the settlement price prevailing at the time of
exercise.

Receives a payment that equals the exercise price minus

the futures settlement price.

The put owner would not exercise unless the exercise

price exceeded the futures settlement price.

Upon exercise, the put seller:

Receives a long position in the underlying futures
contract.

Pays the exercise price minus the settlement price.

Chapter 13 5
 Characteristics of Options on Physicals
and Options Futures

On April 1, a trader buys a put option on a MAY wheat

futures contract. The exercise price is $2.40/bushel and
wheat contract is for 5,000 bushels. On April 4, the owner
of the call option decides to exercise. The futures
settlement price is $2.32/bushel.
Exercise price = $2.40/bushel
Wheat contract = 5,000 bushels
Futures settlement price = $2.32/bushel.
The wheat futures matures = May
Upon exercise, the put owner:
Receives a short position MAY Wheat futures contract.

Receives a payment = F0 E

$2.40-$2.32 (5,000) = $400

Upon exercise, the put seller:

Receives a long position MAY Wheat futures contract.

Pays $400.

The traders can offset or hold their futures positions.

Chapter 13 6
 Characteristics of Options on Physicals
and Options Futures

The following table summarizes the option examples

discussed previously.

Results of Futures Option Exercises

Option Futures Results Cash Flows
Call Owner holds long futures position. Owner receives F0 - E.
Seller holds short futures position. Seller pays F0 - E.
Put Owner holds short futures position. Owner receives E - F0.
Seller holds long futures position. Seller pays E - F0.
where:
F0 = futures settlement price at time of exercise
E = exercise price of the futures option

The overall profitability of the transactions depends upon

the original premium and the prices that become available
before expiration of the option.

Chapter 13 7
 The Market of Options on Futures

Figure 13.1 presents some illustrative quotations for

options on futures.

Insert figure 13.1 here

Chapter 13 8
 The Market of Options on Futures

Table 13.1 shows the trading volume for options on futures

by type of commodity in the fiscal year ending September
30, 1995.

Table 13.1
Trading Volume for Futures Options
(Year Ending September 30, 2003)
Commodity Group Number of Contracts Traded (millions)
Grain 6.8
Oilseeds 5.3
Livestock 0.9
Other Agricultural 5.3
Energy/Wood 20.7
Metals 4.3
Financial Instruments 173.9
Currencies 2.1

Total 219.2

Source: Commodity Futures Trading Commission, Annual Report, 2003.

Chapter 13 9
The Market of Options on Futures

Product Profile: The NYMEX=s Crude Oil Futures Options

Contract Size: One NYMEX light, sweet, crude oil futures contract
Strike Prices: Twenty strike prices in increments of 50 cents per barrel above and below the
at-the-money strike price. The next 10 strike prices are in increments of $2.50 above the
highest and below the lowest strike prices for a total of 61 strike prices (including the at-the-
money strike price).
Tick Size: One cent per barrel ($10 per contract)
Price Quote: U.S. dollars and cents per barrel.
Contract Months: Thirty consecutive months plus long-dated futures initially listed 36, 48,
60, 72, and 84 months prior to delivery.
Expiration and final Settlement: Last trading day is three business days prior to the last
trading day for the underlying futures contract.
Trading Hours: Open outcry trading is conducted from 10:00 AM until 2:30 PM.
Daily Price Limit: None.

Chapter 13 10
 The Market of Options on Futures

Product Profile: The CME=s S&P 500 Futures Options

Contract Size: One S&P 500 stock index futures contract
Strike Prices: Generally12 strikes, including the at-the-money strike. Increments between
strike price generally are 25 index points. Number of strike prices increases as expiration
approaches and increments between strike prices is reduced to a minimum of 5 index points.
Tick Size: .1 index points or $25.00.
Price Quote: Price is quoted in terms of Standard & Poor=s 500 Index.
Contract Months: Four months in the March, June, September, December cycle plus the first
two serial months not in the cycle for a total of 6 contract months.
Expiration and final Settlement: Options that expire in the March, June, September,
December cycle expire at the same time as the underlying futures contract. The two non-
March cycle options expire on the third Friday for the contract month.
Trading Hours: Floor: 8:30 a.m. to 3:15 p.m.; Globex: Monday through Thursday 3:30 p.m.
to 8:15 a.m. with a shutdown period from 4:30 p.m. to 5:00 p.m. nightly. Sunday and holidays
5:30 p.m. to 8:15 a.m.
Daily Price Limit: Trading halted when futures trading is halted

Chapter 13 11
 The Market of Options on Futures

Product Profile: The CME=s Eurodollar Futures Options

Contract Size: One Eurodollar futures contract
Strike Prices: Generally12 strikes, including the at-the-money strike. Increments between
strike price generally are 25 index points. Number of strike prices increases as expiration
approaches and increments between strike prices is reduced to a minimum of 5 index points.
Tick Size: .01 index points or $25.00.
Price Quote: Price is quoted in terms of the IMM 3-month Eurodollar index, 100 minus the
yield on an annual basis for a 360-day year.
Contract Months: Eight months in the March, June, September, December cycle plus the first
two serial months not in the cycle for a total of 10 contract months.
Expiration and final Settlement: Options on the March, June, September, December cycle
cease trading at 5:00 a.m. Chicago Time (11:00 a.m. London Time) on the second London
bank business day immediately preceding the third Wednesday of the contract month. The
two non-March cycle options expire on the Friday immediately preceding the third
Wednesday for the contract month.
Trading Hours:Floor: 7:20 a.m.-2:00 p.m; Globex: Mon/Thurs 2:10 p.m.-7:05 p.m.;
Shutdown period from 4:00 p.m. to 5:00 p.m. nightly; Sunday & holidays 5:30 p.m.-7:05 p.m.
Daily Price Limit: No limit

Chapter 13 12
 Pricing Options on Futures

Recall from Chapter 12:

European Options

European options can be exercised only on the maturity

date.

American Options

American options can be exercised any time prior to

maturity.

The Black-Scholes model focus best on European options

which avoids problems with early exercise and dividends.

When there is a dividend and the dividend rate varies, the

Black-Scholes model is not suitable for valuing options on
futures.

The Black-Scholes model can be modified for forward

option pricing.

Chapter 13 13
Graphical Approach to American Options
on Futures

Figure 13.2 illustrates how European options prices are

good approximations for American futures option prices

Insert figure 13.2 here

Chapter 13 14
 Black-Scholes Model for Options on
Forward Contracts

The Black-Scholes equation for option on forward

contracts is:

C = e - rt [ F 0,t N( d *1 ) - E N( d *2 )]
Where
r = risk-free rate of interest
t = time until expiration for the forward and the option
F0,t = forward price for a contract expiring at time t
= standard deviation of the forward contracts price

ln( F / E ) .5 2t
d
*
1
t

d * 2 d *1 t
If there were no uncertainty, N(d1*) and N(d2*) will equal
1 and the equation would simplify to:
Cf = e-rt[F0,t - E]

Chapter 13 15
 European Versus American Option on
Futures

European Options
Early exercise of an option on a non-dividend paying stock
is not recommended:
Recall that upon exercising, the call owner receives the
intrinsic value (S E).

Exercising a call discards the excess value of the option

over and above S E.

American Options
Early exercise of a dividend paying futures option has
benefits and costs
Benefit: exercise provides an immediate payment of F E
which can earn interest until expiration ert [F - E].

Cost: sacrifice of option value over and above intrinsic

value F E.

Chapter 13 16
Approximating European and American
Futures Option Values

Table 13.2 compares the theoretical values for

European and American options on futures. The table
assumes that the option on futures expires in half a year
and has an exercise price of $100. The risk-free rate of
interest is 8% and the standard deviation of the
percentage change in the futures price is 0.2.

Table 13.2
Comparison of European and Approximate American
Futures Option Call Values

r = .08 = .20
t = .5 years E = 100

Approximate
Futures Price European American
80 0.30 0.30
90 1.70 1.72
100 5.42 5.48
110 11.73 11.90
120 19.91 20.34
Source: G. BaroneBAdesi and R. Whaley, AEfficient Analytic Approximation of
American Option Values,@Journal of Finance, 42:2, June 1987, pp. 301B320.

Chapter 13 17
 Efficiency of The Option on Futures
Market
Most tests of efficiency examine whether market prices
match the prices of a theoretical model.
A test of market prices against a theoretical model is a joint
test of the market's efficiency and the model's ability to
correctly represent the price.
The results of Whaleys test for efficiency are presented in
Table 13.3.
Table 13.3
Pricing Discrepancies for S&P 500 Futures Options
Observed Market Price C Theoretical Price
Summary of average pricing errors of American futures option pricing models by the option's moneyness
(F/E) and by the option's time to expiration in weeks (t) for S&P 500 futures option transactions during the
period January 28, 1983, through December 30, 1983.

Calls Puts
t<6 6 t < 12 t 12 All t t<6 6 t < 12 t 12 All t
F/E < 0.98 B0.0630 B0.1372 B0.0872 B0.1028 B0.1064 B0.0914 B0.1056 B0.1014
0.98 F/E <1.02 B0.1228 B0.0775 0.0073 B0.0924 B0.0816 B0.0196 0.1336 B0.0406
F/E 1.02 0.0577 0.1175 0.0702 0.0806 0.1286 0.1906 30.3060 0.1929
All F/E B0.0757 B0.0599 B0.0120 B0.0606 B0.0191 0.0808 0.2287 0.0537
Source: R. Whaley, AValuation of American Futures Options: Theory and Empirical Tests,@Journal of
Finance, March 1986, p. 138.

The differences between the theoretical and market price

are significant here.

Chapter 13 18
 Efficiency of The Option on Futures
Market

Some of the studies summarized in Table 13.4 compare

actual prices with Black model prices.

Table 13.4
Tests of Efficiency for Futures Options
Study Key Results

Whaley (1986) For S&P 500 futures options, market and theoretical
prices are systematically different.

Jordan, McCabe, and For soybeans, compared the difference between actual
Kenyon (1987) market prices and the Black model price, with average
differences being 4/100 of a cent per bushel.

Ogden and Tucker For currencies, futures options appear to be efficiently

(1987) priced.

Bailey (1987) For gold, futures options appear to be efficiently priced.

Blomeyer and Boyd In early trading of TBbond futures options, inefficiencies

(1988) may have existed. However, inefficient prices were rare
and difficult to exploit.

Wilson and Fung For grain futures options, prices closely conformed to
(1988) the Black model. In periods of high volatility, actual
prices did not rise as much as Black model prices.

Chapter 13 19
 Price Relationship Between Options on
Physicals and Options on Futures

In this section, the pricing relationship between options on

physicals and options on futures is considered, specifically
for call options. The analysis is organized as follows:

1. European options

2. American options on underlying assets with no cash

flow

3. American options on underlying assets with cash flow

Chapter 13 20
 Price Relationship Between Options on
Physicals and Options on Futures

The following assumption will be held for this analysis:

1. The options have the same expiration and exercise

price.

2. The options are on the same underlying commodity.

One option is on the commodity itself.

One option is on the futures on the commodity.

Chapter 13 21
 European Options on Physicals and
Futures

Recall from Chapter 12 that at expiration a call option on

the physical will be worth:

S-E

For European options on futures, exercise can occur only

at expiration, so it must be that:

Ft,t - E = St - E

For European options the exercise value for options on

physicals and options on futures is the same.

Chapter 13 22
 American Options on Physicals and
Futures with No Underlying Cash Flows

For American options, any difference in value between

options on physicals and options on futures results from the
early exercise privilege. Table 13.5 shows the exercise
values that the option on the futures can have given the
option on physicals in percentage terms. The risk-free rate
is assumed to be 15% and the percentage change in the
underlying assets is .25.

Table 13.5
Percentage Difference in Value
for Call Options on Futures and Options on Physicals
Assumptions:

Underlying asset has no cash flows.

r = .15
= .25

Ratio of Physical Price to Days Until Expiration

Exercise Price 30 60 90 180 270
0.8 0.00 0.00 0.00 1.20 2.02
0.9 0.00 0.00 0.47 1.58 3.15
1.0 0.29 0.56 1.02 2.48 4.51
1.1 0.61 1.15 1.72 3.79 6.34
1.2 1.22 2.13 2.89 5.52 8.70
Source: M. Brenner, G. Courtadon, and M. Subrahmanyam, AOptions on the Spot
and Options on Futures,@Journal of Finance, 40:5, 1985, pp. 1303-1317.

Chapter 13 23
 American Options on Physicals and
Futures with Underlying Cash Flows

This analysis is particularly relevant to options on stock

indexes and options on stock index futures.

Cash flows from the underlying good reduce its value.

When stock pays a dividend, the stock price drops by
approximately the amount of the dividend.

These cash flows affect both the option on the physical

and the option on the futures.

The analysis focuses on underlying physical asset paying

a continuous dividend (cash flow) equal to the risk-free rate
of interest.

Under conditions of certainty, a futures call option is worth

the present value of:

F0,t E, t = 0

Based on the perfect markets Cost-of-Carry Model the

futures price will be:

F0,t = S0(1 + C)

Chapter 13 24
 American Options on Physicals and
Futures with Underlying Cash Flows

For financial futures, the cost of carry is the risk-free

interest rate. Assume a continuous dividend equal to the
risk-free rate of interest. In this case, the cost of carry is
zero, so the futures call option price equals:
F0,t = S0erte-rt = S0
Substituting the value of F0,t into the Black-Scholes OPM
gives an adjusted Black-Scholes OPM of:

C f = e rt [ S 0 N( d*1 ) EN( d*2 )]

where:
Cf = the price of a call option on the futures

After adjusting the Black-Scholes model for continuous

paying dividend:
C f = e-rt S 0 N( d *1 ) - e - rt EN( d *2 )

C f = e-rt S 0 N( d 1 ) - EN( d 2 )

The values for the call option on the futures and physical are
the same. That is, d1* = d1, and d2* = d2.

Chapter 13 25
 Relative Prices of Options on Physicals
and Futures

The implications of this analysis for various dividend rates

are:

Relative Prices of Options on Physicals and Futures

Option Characteristics Call Put

European Options Cf = Cp Pf = Pp
American OptionNo Dividend Cf > Cp Pf < Pp
American OptionContinuous Dividend
Dividend Rate < Interest Rate Cf > Cp Pf < Pp
Dividend Rate = Interest Rate Cf = Cp Pf = Pp
Dividend Rate > Interest Rate Cf < Cp Pf > Pp

where:
Cf, Cp = call on the futures and call on the physical
Pf, Pp = put on the futures and put on the physical

Chapter 13 26
 Put-Call Parity for Options on Futures

Recall that Put-Call Parity specifies a relationship between

the price of call and put options.

For non-dividend paying assets put-call parity equals:

C - P = S0 - Ee-rt
where:

C = value of a call with exercise price E

P = value of a put with exercise price E
E = exercise price of both the call and put
S0 = stock price
r = risk-free rate of interest
t = time until the options expire

Chapter 13 27
 Put-Call Parity for Options on Futures

Before expiration, for options on futures, the relationship

can be expressed as:

Cf - Pf = (F0,t - E)e-rt
where:

Cf = futures call option with exercise price E

Pf = futures put option with exercise price E

F0,t = current futures price

E = common exercise price for Cf and Pf

r = risk-free rate

t = time until expiration for the futures and options

Comparing both equations shows the similar structure of

put-call parity for options on physicals and on futures.

Chapter 13 28
 Put-Call Parity for Options on Futures

Using continuous compounding, the Cost-of-Carry Model

for a perfect market is:

F0,t = S0ert
Substituting this expression for the futures price into the
above equation gives:

Cf - Pf = (S0ert - E)e-rt = S0 - Ee-rt

Chapter 13 29
 Options on Futures and Synthetic
Futures
Synthetic Futures

A position that duplicates the profits and losses from a

futures, but consists of positions in other instruments.

Creating synthetic futures equals:

Futures Call - Futures Put = Synthetic Futures

Table 13.6 summarizes the rules for constructing synthetic

positions.
Table 13.6
Rules for Creating Synthetic Instruments
Synthetic Futures = Call B Put
Synthetic Call = Put + Futures
Synthetic Put = Call B Futures
Synthetic Short Futures = Put B Call
Synthetic Short Call = B Put B Futures
Synthetic Short Put = B Call + Futures
Note: A synthetic instrument has the same profit and loss characteristics as the
actual instrument. However, the synthetic instrument does not necessarily have
the same value as the actual instrument.

Chapter 13 30
 Risk Management with Options on
Futures

This section explores examples related to risk

management including:
Portfolio Insurance

Synthetic Portfolio Insurance and Put-Call Parity

Risk and Return in Insured Portfolios

Chapter 13 31
 Risk Management with Options on
Futures Example

Assume: a stock index is currently at $100. Stocks in the

index pay no dividends, and the expected return on the
index is 10% with a standard deviation of 20%. A put option
on the index with an exercise price of $100 is available and
costs $4. Consider three investment strategies:
Portfolio A : Buy the index; total investment $100.
(uninsured)
Portfolio B: Buy the index and one-half of a put; total
(half insured) investment $102.
Portfolio C: Buy the index and one put; total
(fully insured) investment $104.
At expiration, the three portfolios will have profits and
losses computed using the following equations:
Portfolio A: Index Value - $100
Portfolio B: Index Value + .5 MAX{0, Index Value
$100} - $102
Portfolio C: Index Value + MAX{0, Index Value
$100} - $104

Chapter 13 32
 Risk Management with Options on
Futures

Figure 13.4 graphs the profits and losses of these 3

portfolios.

Insert Figure 13.4 here

Chapter 13 33
 Portfolio Insurance

Recall that in portfolio insurance, a trader transacts to

insure that the value of a portfolio does not fall below a
given amount.

Based on figure 13.4, portfolio C is an insured portfolio:

The value of portfolio C cannot fall below $100. To create
portfolio C, a trader bought the index at $100 and bought an
index put with an exercise price of $100.

The worst possible loss on portfolio C is $4. Portfolio C

must always be worth at least $100 because the value can
not fall below $100, so it an insured portfolio.

Chapter 13 34
 Synthetic Portfolio Insurance and Put-
Call Parity

Recall that a synthetic call could be created from a long

position in the underlying good plus a long put. Thus a
synthetic call is:

Synthetic Call = Put + Index

From Figure 13.4, the Put + Index portfolio has the same
profits and losses as a call option with an exercise price of
$100.

Applying the put-call parity equation to the index example:

Call = Put + Index - Ee-rt

where:

E = exercise price on the index option

An instrument with the same value and profits and losses

as a call can be created by holding a long put, long index,
and borrowing the present value of the exercise price.

Chapter 13 35
 Synthetic Portfolio Insurance and Put-
Call Parity

Synthetic Calls and Put-Call Parity

Synthetic Call = Put + Index A synthetic call replicates the

profits and losses from the call, but
Put-Call Parity: it does not have the same value as
Call = Put + Index - E-rt the call.

The long put/long index/short bond

portfolio duplicates the value and
profits and losses of the call
option.

From the put-call parity, there is another way to create a

portfolio that exactly mimics the insured portfolios value at
expiration.

Call + E-rt = Put + Index

We can hold a long call plus investing the present value of

the exercise price in the risk-free asset.

Chapter 13 36
 Risks Return on Insured Portfolios

Each of the portfolios A-C has different risk characteristics.

To explore the risk properties of the portfolios assume that
the return on the index follows a normal distribution with a
mean of 10% and a standard deviation of 20%.

Terminal Values for Portfolios A-C.

The portfolio values at expiration depend on the price of

the index at expiration. For each, the terminal value is:

Portfolio A = Index
Portfolio B = Index + MAX{0, .5(100.00 - Index)}
Portfolio C = Index + MAX{0, 100.00 - Index}

What is the probability that each of the portfolios will have

a terminal value equal to or less than $100?

Chapter 13 37
 Risk Return in Insured Portfolios

Table 13.7 shows some portfolio values and the

probabilities that each portfolio will be equal to or less than
the given terminal value at the expiration date.

Table 13.7
Probability That the Terminal Portfolio Value
Will Be Equal to or Less than a Specified Value
Probabilities
Uninsured HalfBInsured Fully Insured
Terminal Portfolio Value Portfolio A Portfolio B Portfolio C
50.00 0.0014 0.0000 0.0000
60.00 0.0062 0.0000 0.0000
70.00 0.0228 0.0002 0.0000
80.00 0.0668 0.0062 0.0000
90.00 0.1587 0.0668 0.0000
100.00 0.3085 0.3085 0.3085
110.00 0.5000 0.5000 0.5000
120.00 0.6915 0.6915 0.6915
130.00 0.8413 0.8413 0.8413
140.00 0.9332 0.9332 0.9332
150.00 0.9773 0.9773 0.9773
160.00 0.9938 0.9938 0.9938
170.00 0.9987 0.9987 0.9987

Chapter 13 38
 Risk Return in Insured Portfolios

Figure 13.5 graphs the terminal portfolio values from $50

to $170 and shows the probability for each portfolio that
the terminal portfolio value will be below or equal to the
given amount.

Insert Figure 13.5 here

Chapter 13 39
 Risk Return in Insured Portfolios

Returns on Portfolios A-C

Table 13.8 shows the probability that each portfolio will
achieve a return greater than a specified return.
Table 13.8
Probability of Achieving a Return
Equal to or Greater than a Specified Return
Probabilities
Uninsured HalfBInsured Fully Insured
Portfolio Return Portfolio A Portfolio B Portfolio C
-0.5000 0.9987 1.0000 1.0000
-0.4000 0.9938 1.0000 1.0000
-0.3000 0.9773 0.9996 1.0000
-0.2000 0.9332 0.9904 1.0000
-0.1000 0.8413 0.9066 1.0000
0.0000 0.6915 0.6554 0.6179
0.1000 0.5000 0.4562 0.4129
0.2000 0.3085 0.2676 0.2297
0.3000 0.1587 0.1292 0.1038
0.4000 0.0668 0.0505 0.0375
0.5000 0.0228 0.0158 0.0107

This is a tradeoff between return and risk on the portfolios.

The portfolios having a higher return also have a higher
risk.
Chapter 13 40
 Risk Return in Insured Portfolios

Figure 13.6 graphs the probabilities for each portfolio for a

range of returns from -50% to 50%.

Insert Figure 13.6 here

Chapter 13 41
 Why Options on Futures

Some reasons for the popularity of options on futures are:

1. A futures position exposes a trader to a theoretically

unlimited risk of gain or loss, but this is not true for the
buyer of a futures option.

2. Options on futures dominate options on physicals in

some markets because the futures market for some
goods is much more liquid than the market for the
physical good itself.

3. Options on futures generally require less investment

than options on the physical good itself.

Chapter 13 42