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Jerome2018
Topic Author
Posts: 2
Joined: September 13th, 2018, 3:09 pm

### Cost of Carry options on futures CME on Margin account

I am trading on the CME and did some DEC 2019 ITM call and put options (American style). According to the CME, the value of these options is subject to a cost of carry:

Cost of carry = Intrinsic Value x (1 - e^ - (Interest Rate x Days to Expiration/365))

Based on a futures price of 1617, the 1400 C is 233 and the 1400 P is 20. According to the PC parity: F-C+P-K should equal 0. However this is not the case (+4), since they apply a cost of carry component.
However, the 1100C is 517 and the 1100P = 0.5 so the PC parity works there as it should since it is an American style option.

According to Asay(1982) as described in Haug, there should NOT be any interest rate component on Margined Options on Futures.
In my opinion the CME is wrong, but need some good arguments to show them their error.

riskneutralprob
Posts: 37
Joined: December 16th, 2005, 5:16 pm

### Re: Cost of Carry options on futures CME on Margin account

What is the bid/ask of the call?  What is the bid/ask of the put?  What is the bid/ask of the future?

ppauper
Posts: 70239
Joined: November 15th, 2001, 1:29 pm

### Re: Cost of Carry options on futures CME on Margin account

I thought put-call parity was for European options

Jerome2018
Topic Author
Posts: 2
Joined: September 13th, 2018, 3:09 pm

### Re: Cost of Carry options on futures CME on Margin account

What is the bid/ask of the call?  What is the bid/ask of the put?  What is the bid/ask of the future?

Collector
Posts: 4186
Joined: August 21st, 2001, 12:37 pm

### Re: Cost of Carry options on futures CME on Margin account

i dont think fully margined futures options of the Assay 1982 type trade at CME? I think this is when the option premium itself is fully margined and not paid before expiration?  The Assay 1982 paper to my memory was related to some options trading in Australia? More than 10 years since I read that paper,  so possibly I remember wrong about the assumptions about the Assay adjustment, uncertainty fades the past.

I have the paper likely stored in a box on my barn, and not sure the horse has eaten it or not... if u have the paper and send me i could take a look....

HarryHancock
Posts: 3
Joined: January 11th, 2019, 9:35 am

### Re: Cost of Carry options on futures CME on Margin account

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