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Option contracts give trade hedgers and investors a more flexible alternative to futures as a means of trading on the Exchange. When buying an options contract, the purchaser (taker) is not entering into a firm obligation. They are simply buying a choice of action. This choice allows the genuine trade hedger the opportunity of locking in a fixed price while maintaining the ability to abandon the option in order to take advantage of favourable price movements. This would be forfeited with a straight futures hedge.
A call option is a contract giving its owner the right but not the obligation to buy an LME futures contract(s) at a fixed price (strike price) at any time on or before a given date.
A put option is a contract giving its owner the right but not the obligation to sell and LME futures contract(s) at a fixed price (strike price) at any time on or before a given date.
The cost of purchasing the option is referred to as the premium and, unless the option is traded on, this is a write-off. It is not part of the value of the underlying futures contract. This means it is down to the user's perception of the market and the cost of the option as to whether they choose to use futures or options as their hedging medium.
Today, LME-traded option contracts are available against the underlying futures contracts for all LME metals as well as for LMEX.
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