If the price of orange juice stays around the same levels (say at 137 cents/pound) at the time of expiry, the option will get exercised (as the current price is higher than strike price of the call option). A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed upon price and date. Aside from home gym, video conferencing and delivery services, a winner in commodities may be orange juice. View the futures and commodity market news, futures pricing and futures trading. I have been a proud Booster Juice Franchise Partner for the last 6 years. Make sure to take into consideration weather and seasonality when investing in FCOJ futures. Deducting the 4 cents he paid as option premium, his net sale price will be 146 cents/pound (better than his expected level of 130 cents/pound). January, March, May, July, September, November. Other commodities that trade on commodities exchanges include silver, platinum, rice, sugar, orange juice, oats, cattle, corn, copper, cocoa, soybeans, and coffee. Mentions of oranges or orange juice refer to one unit of frozen concentrated orange juice. For simplicity, all the below examples use one unit of frozen concentrated orange juice. A must be filled (MBF) order is a trade that must be executed due to expiring options or futures contracts. The physical settlement of one contract equal to 15,000 pounds of orange solids is done through delivery in drums or tanks. Agriculture ETFs can be used to diversify or stabilize a portfolio, hedge risk to certain countries dependent on an agriculture commodity, or even create a new investing opportunity. Example of Using Orange Juice Options for Hedging. The NYBOT includes two versions of the FCOJ contract: one that tracks the Florida/Brazil oranges (FCOJ-A) and another one based on global production (FCOJ-B). Investing in Orange Juice through Future Market Contracts, What to Consider When Buying Put Options in Stock Trading. This futures contract will give him the right to sell the oranges at this predetermined price (135 cents/pound X 15,000 pounds=$20,2500). A common grocery orange that comes in several varieties including Cara cara, Bahia and dream navel. Here is the volatility graph as available from ICE exchange report (Source: CRB-Infotech): Such varying volatility leads to high volatility skew, which makes orange juice option contracts suitable to trade ratio spreads. He can then use that futures contract to take one of several actions: trade (sell/buy) the futures contract, exchange the contract for physical orange juice, or roll over the contract to the next term futures contract. However, a clear advantage long options have over futures is that long option positions don’t need margin money or a daily mark-to-market like futures. The reduction in consumption can lead to price declines. Fruit are washed, then they are positioned between two cups that cut the peel and press (squeeze) the fruit simultaneously. -Cut and squeeze the juice of the lemon into your strained juice. These two countries are the most influential markets for determining international orange prices. FCOJ traders must carefully monitor climate conditions in key growing regions; Growers in Florida harvest 96% of the crop by hand using wooden ladders and canvas pick sacks. The hurricane season common in the Florida region, for example, can have a significant impact on the prices of oranges both on the spot market and in the futures market. Apart from the above listed factors which affect the orange spot prices, orange juice option trading is also impacted by factors specific to option pricing models - exercise or strike price, time to expiry, risk free rate of return (interest rate), and volatility. However, he will be able to sell the orange crop at market rates of 150 cents per pound. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Clicking on the links column icons (Q C O) displays the quotes, charts, options and historical market data for each Futures contract - as well as the Orange Juice Futures Cash. Allowed countries of origin for oranges are the United States, Brazil, Costa Rica, and Mexico. The VanEck Vectors Agribusiness ETF focuses on investing in the stocks of companies that operate in agriculture. This convenience comes at the cost of nonrefundable option premium being paid upfront and is prone to time decay. This comes at the cost of the option premium of 4 cents/pound. These weather events impact the orange crop, which impacts FCOJ prices and options prices. A popular way to invest in orange juice is through the use of a contract for difference (CFD) derivative instrument. Start trading with IFC Markets We are ready to support you with any kind of questions, 24 hours a day. The peel acts as a natural barrier and, as long as you don’t eat the peel or use it in recipes, you won’t ingest the chemicals that coat the outside of the orange. If the price of orange juice rises to say 150 cents at the time of expiry, the option will expire worthless (as the current price is higher than strike price of the put option). Multiple financial instruments, like futures and options, are available for trading orange juice. For a 15,000 pounds contract, he will receive $21,900. Orange juice is one of the few actively traded contracts in the futures markets that’s based on a tropical fruit. She can buy oranges at the market price of 150 cents, taking the total buy price to 139.5 cents/pound (150 – 10.5 = 139.5 cents/pound). Brazil is by far the largest producer of oranges, although the United States — primarily Florida — is also a major player. a revolution in orange juice extraction VSS – Vertical Squeezing System, a unique internationally patented system able to squeeze the oranges separating the bitter oils of the peel from the juice, maximizing the yield and avoiding waste, with the highest standard of cleanliness and hygiene. This means that if an orange juice option contract expires in-the-money (ITM), the buyer of the orange juice call/put option will get the right to enter into a long/short orange juice futures contract. She paid the upfront option premium of 4.5 cents taking net profit to 10.5 cents/pound. In orange juice options trading, the underlying asset is one FCOJ-A futures contract. Looking for Orange Juice: How to make and bottle your own homemade canned orange juice in 2020? No. Orange juice option traders should be aware of these dependencies. 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