More flexible than futures, LME options provide the metal and financial communities with alternative opportunities to reduce price risk (through hedging trades), or take on price risk (on expected price moves).
An option provides the right, but not the obligation, to buy or sell metal at set price, on a set date in the future. A buyer of an option pays a known premium, for unlimited potential upside.
Tradeable out up to 63 months (depending on metal) LME options can be exercised any time up to and including the expiry date (American style). The underlying is the equivalent 3rd Wednesday LME future, itself physically settled.
Contract specifications
| LME Aluminium LME Aluminium Alloy LME NASAAC LME Copper |
LME Lead LME Nickel LME Tin LME Zinc |
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Black '76 Option Pricing Formula
Review of Methods for the Interpolation of Contributed Wing Volatilities (PDF)
The London Metal Exchange (LME) issued a market-wide discussion paper on plans to simplify and standardise some areas of its options market structure.
Options discussion paper