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

Cost of Carry options on futures CME on Margin account

September 13th, 2018, 3:31 pm

Can someone please help me with the following? 
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.

Can someone please help?
 
 
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riskneutralprob
Posts: 37
Joined: December 16th, 2005, 5:16 pm

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

September 17th, 2018, 9:48 pm

What is the bid/ask of the call?  What is the bid/ask of the put?  What is the bid/ask of the future?
 
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ppauper
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Joined: November 15th, 2001, 1:29 pm

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

September 18th, 2018, 12:14 am

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

January 4th, 2019, 3:06 pm

What is the bid/ask of the call?  What is the bid/ask of the put?  What is the bid/ask of the future?
Bid ask is not really relevant here since I was referring to the revals the CME uses. Have had several conversations with the CME about this since and they mentioned that for in the money options between 50 and 99 delta, they add an arbitrary premium making PC parity invalid. However, when you look at 100 delta options, the PC parity is correct since they argue that you could always XXX the 100 delta option. Whether it is American or European Option should not matter for futures since everything is MTM, you get no interest on your margin. If you buy a deep ITM Call and sell a Future against it, your margin requirements are covered by the value of the option. Your margin should be close to zero and you will not generate any PNL.
 
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Collector
Posts: 4037
Joined: August 21st, 2001, 12:37 pm

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

January 8th, 2019, 9:22 pm

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
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Joined: January 11th, 2019, 9:35 am

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

January 11th, 2019, 9:47 am

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