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CBOT Corn Futures and Options Market

 

The No Nonsense Guide to Buying and Selling Options

 

*The information contained within this webpage comes from sources believed to be reliable. No guarantees are being made to the content's accuracy or completeness.

 

The History of Corn and Corn Futures Trading

Corn has been called the other yellow gold because of its value around the globe throughout most of the history of man. Corn is a member of the grass family of plants and is one of the native grains of the American continents. For thousands of years corn has been a staple of everyday life, serving as a source of food, energy and currency. Early Indians migrated from Eastern Asia through North America to what is now South America and used corn plants for everything from making clothes to making a primitive beer from its chewed kernels. For thousands of years, maize crops have been cultivated by the Mayans and Incas to today's advanced hybrids resistant to pests and chemicals, corn remains firmly rooted at the heart of agriculture. Corn is thought to be the second most cultivated plant throughout the history of man behind wheat.

 

CBOT Corn Futures and Options Quick Facts

  • 5,000 bushel contract size

  • each one cent move equals $50

  • trades Mar., May, July, Sep., Dec.

  • Corn futures symbol (C)

 

Here is the grain and oilseed brochure courtesy of the CME Group.

Grain/oilseed brochure

 

As an exchange traded commodity and future contract, corn futures is one of the two originals and is also the most liquid of the grain future contracts. Cotton began trading in New York at about the same time that corn futures began trading in Chicago in the mid 1800's. The original corn futures or forward contract was for 3000 bushels instead of the 5000 bushel contract of today. Back then the exchange membership fees were $3 instead of the 6 and 7 figure costs for exchange seats today. The Chicago Board of Trade is the premiere corn future trading exchange in the world today.

The corn market's role in the production of ethanol has increased its demand because of the high prices for petroleum products. Some experts believe that if crude oil prices stay above $45/barrel it is economically feasible for ethanol to be produced and added to unleaded gasoline.

Corn, soybeans and wheat are often used to feed poultry and livestock and are sometimes substitutes for each other based on prices. As an example, if corn prices are too high, livestock farmers may feed their animals feed wheat or some other grain. The same goes for soy meal and corn meal. Poultry farmers will use which ever one gives them the most protein bang for the buck.

Corn has many different uses and many different products are made from corn that many people are unaware of: antibiotics, aspirin, laminated building products, lubricating agents, metal plating, adhesives, construction materials and even cardboard. These diverse applications for corn make the corn futures and corn options market that much more important to the corn industry. Many savvy farmers use the corn futures and corn options markets to hedge their crops against adverse price movements.

 

Corn and Corn Futures and Options Uses

How many times a day does the average American consumer use a product derived from corn? You may fill your car up with ethanol blended fuel. That soda at lunch - sweetened with a corn sweetener. Maybe you have a pillow or comforter made from corn fiber. And the pot roasts for dinner - most likely corn-fed beef. The grain future contracts have become more and more popular because of their relative liquidity and leverage.

Regardless of market, producers around the world continue to explore value-added opportunities for corn. One of the most successful efforts has been the growth of the ethanol market. Ethanol production is being subsidized in the U.S. and its production continues to increase and newer automobiles are being outfitted to withstand the extra wear and tear that ethanol hase on rubber fuel hoses and other parts of the car that are not resistant to alcohol. Corn future and ethanol future trading have become major future trading contracts. Learn More >>>

 

Are you a corn hedger? If so, click here to learn more.

 

Corn Options on Futures Contracts Explained

A corn call option gives the purchaser the right but not the obligation to purchase the underlying futures contract for a specific time period and a specific price (strike price). Let's say that you wanted to purchase a December corn $3 call option and pay a premium of $1,000.

This means that you bought the right but not the obligation to buy 5,000 bushels of December corn for $3 per bushel. Of course, very few options are bought for the purpose of taking delivery but that is one potential outcome. Chances are that you either bought the corn option to hedge your price risk in the physical corn market (you may be a farmer or and end user of corn) or you are speculating that corn prices will go higher in an attempt to make a profit.

A corn put option gives the purchaser the right but not the obligation to sell the underlying futures contract for a specific time period and a specific price. Let's say that you wanted to buy a December corn $2.50 put option and pay a premium of $1,100.

This means that you have the right but not the obligation to sell 5,000 bushels of December corn at $2.50 per bushel.

What is the delta factor?

The delta factor of an option represents the estimated percentage of change an option will receive based on the movements in the underlying futures contract.

Let's assume the December corn $3 call option above has a 30% delta factor. This means that if the underlying futures contract were to rally by $1,000, then the call option would accrue by approximately $300 or 30% of $1,000 in the corn futures contract.

What is theta?

Options are wasting assets which means that they lose value as time passes. The theta of an option is the measure of time decay.

Let's assume that you bought a December corn call option with 60 days left until expiration. Let's also assume that the corn futures prices have moved very little over the last month and are exactly the same price 30 days later. Your option will have lost 30 days worth of time and therefore will be worth less today that it was when it had 60 days left until expiration.

What is vega?

Vega is a measure of the implied volatility of an option contract as it relates to its underlying futures contract. For instance, if the underlying futures contract is extremely volatile then the implied volatility of the options of that futures contract will be affected.

In a high implied volatility environment option premiums tend to expand. Conversely, in a low implied volatility environment the option premiums tend to decrease.

 

 

*Contract information changes from time to time. Please click here to see the most recent contract specifications and click here for the most recent trading hours.

 

Corn Future Contract Specifications

Corn Futures

 

Size - 5,000 bushels

Tick Size - $0.025/bu

Daily Price Limit - $0.20/bu

Strike Price - N/A

Contract Months - Dec, Mar, May, Jul, Sep

Last Trading Day - Seventh business day proceeding the last business day of the delivery month

Expiration Day - N/A

Trading Hours - (CME Globex) Sunday - Friday 7:00 pm -7:45 am CT (Open Outcry) Monday -Friday 8:30 a.m. - 1:15 p.m. Central Time

Futures Ticker Symbol - (Globex) ZC (Open Outcry) C

 

 

Corn Options

Size - One CBOT Corn Futures

Tick Size - 1/8c/bu

Daily Price Limit - $0.20/bu

Strike Price - $0.10/bu

Contract Months - Dec, Mar, May, Jul, Sep

Last Trading Day - Last Friday proceeding the first notice day of the corresponding futures contract by at least five business days.

Expiration Day - Unexercised options expire at 10 a.m. on the first Saturday following the last trading day.

Trading Hours - (CME Globex) Sunday - Friday 7:00 pm -7:45 am CT (Open Outcry) Monday -Friday 8:30 a.m. - 1:15 p.m. Central Time

**Click Here Now! for actual corn futures and options, quotes, prices, expirations, charts .....

 

Corn Futures Facts

One bushel of corn weighs 56 pounds.

One bushel of corn produces 2.7 gallons of ethanol.

To produce 1 pound of chicken requires 2 pounds of grain.

To produce 1 pound of pork requires 4 pounds of grain.

To produce 1 pound of beef requires 8 pounds of grain.

 

 

 

To see more about the grain futures visit soybean futures and wheat futures.

 

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The information presented in this commodity futures and options site is not investment advice and is for informational purposes only. No guarantees are being made to its accuracy or completeness. This information can be considered a solicitation to enter into a derivatives trade. Investing in futures and options carries substantial risk of loss and is not suitable for some people. Past or simulated performance is not indicative to future results.