Wheat Futures and Options
Market Trading
Learn the most effective strategies for buying and selling options
on futures contracts. Also learn producer and consumer hedging
strategies.
*The information contained within this webpage comes from sources
believed to be reliable. No guarantees are being made to the
content's accuracy or completeness.
The History of Wheat and Wheat Futures Trading
Wheat is a cereal grass and is believed to
have originated in southwestern Asia. Wheat's use by mankind dates back 10,000 years
to the ancient Mesopotamians near modern day Turkey and Iraq. Wheat may be the
most valued agricultural commodity besides maize throughout the history of
mankind. Wheat was first grown in the United States near what is now
Massachusetts circa 1602. Today wheat is cultivated all around the world and its demand has made
it one to the most actively traded grain commodities in the world. Wheat is also
used as a food source for livestock and based on prices competes with
corn usage.
Here is the grain and oilseed brochure courtesy of the CME
Group.
Grain/oilseed brochure
The Chicago Board of Trade (CBOT), The Kansas City Board of Trade (KCBOT) and
The Minneapolis Grain Exchange (MGEX) are all very important exchanges used to
trade wheat futures and options for the many different types of wheat that are grown in the
USA. The classification terms spring and winter wheat specify when the wheat is
planted not harvested.
The 3 Major Wheat Trading Exchanges
The Chicago Board of Trade is the
largest exchange where wheat futures and options are traded. The CBOT was
established in 1858 and is the oldest US commodity exchange still in operation
today. The CBOT is the primary exchange for soft red winter wheat which is used
to produce biscuits, muffins and cakes. Soft red winter wheat is also crushed to
make cake flour. Soft red winter wheat is considered a low protein wheat. The
CBOT Chicago wheat futures specifications are available further down this
page.
The Kansas City Board of Trade (KCBT), was established in 1876 near one of the world's
most fertile growing regions and is the largest wheat future market for
hard red winter wheat. Hard red winter wheat is considered a high protein wheat
and is used most often in making breads. (KCBT) wheat futures and options are
less liquid than (CBOT) wheat futures and options.
The Minneapolis
Grain Exchange (MGEX) was established in 1881 as a cash market for
grains. The MGEX is the largest wheat future market for hard red spring
wheat. Hard red spring wheat is a high protein wheat used for making breads and
hard baked goods. The (MGEX) wheat futures markets are less liquid than the
wheat futures of the other exchanges.
Are you a wheat
hedger? If so,
click here to learn more.
Wheat Options on Futures Contracts
Explained
A wheat call option gives the
purchaser the right but not the obligation to purchase the
underlying futures contract for a specific time period and a specific
price (strike price). Let's say that you wanted to purchase a July
wheat $4.00 call option and pay a premium of $1,750.
This means that you bought the right but not the
obligation to buy 5,000 bushels of July wheat for $4.00 per bushel.
Of course, very few options are bought for the purpose of taking
delivery but that is one potential outcome. Chances are that you
either bought the wheat option to hedge your price risk in the
physical wheat market (you may be a producer like a wheat farmer or
an end user like a flour mill) or you are speculating that wheat
prices will go higher in an attempt to make a profit.
A wheat put option gives the
purchaser the right but not the obligation to sell the underlying
futures contract for a specific time period and a specific price.
Let's say that you wanted to buy a July wheat $3.90 put option and
pay a premium of $1,250.
This means that you have the right but not the
obligation to sell 5,000 bushels of July wheat at $3.90 per bushel.
What is the delta factor?
The delta factor of an option represents the
estimated percentage of change an option will receive based on the
movements in the underlying futures contract.
Let's assume the July wheat $4.00 call option
above has a 30% delta factor. This means that if the underlying
futures contract were to rally by $1,000, then the call option would
accrue by approximately $300 or 30% of $1,000 in the wheat futures
contract.
What is theta?
Options are wasting assets which means that they
lose value as time passes. The theta of an option is the measure of
time decay.
Let's assume that you bought a July wheat $4.00
call option with 60 days left until expiration. Let's also assume
that the wheat futures prices have moved very little over the last
month and are exactly the same price 30 days later. Your option will
have lost 30 days worth of time and therefore will be worth less
today that it was when it had 60 days left until expiration.
What is
vega?
Vega is a measure of the implied volatility of
an option contract as it relates to its underlying futures contract.
For instance, if the underlying futures contract is extremely
volatile then the implied volatility of the options of that futures
contract will be affected.
In a high implied volatility environment option
premiums tend to expand. Conversely, in a low implied volatility
environment the option premiums tend to decrease.
**Click
Here Now! for actual
wheat futures and options quotes, prices, expirations, charts .....
*Contract information changes from time to time. Please
click here to see the most recent contract
specifications and click here for the
most recent trading hours.
Chicago Board of Trade
|
CBOT Wheat Futures |
|
Contract Size: |
5,000 bushels |
|
Deliverable Grades: |
No. 2 Soft Red, No. 2 Hard Red Winter, No. 2
Dark Northern Spring, and No. 2 Northern
Spring at par. Substitutions at
differentials established by the exchange |
|
Tick Size: |
1/4 cent/bu ($12.50/contract) |
|
Price Quote: |
Cents and quarter-cents/bu |
|
Contract Months: |
Jul, Sep, Dec, Mar, May |
|
Last Trading Day: |
The business day prior to the 15th calendar
day of the contract month |
|
Last Delivery Day: |
Last business day of the delivery month. For
contracts with delivery in March 2000 and
subsequent months: Seventh business days
following the last trading day of the
delivery month |
|
Trading Hours: |
Open Outcry: 9:30 a.m. - 1:15 p.m. Chicago
time, Mon-Fri.
Electronic (a/c/eSM): 8:30 p.m. - 6:00 a.m.
Chicago time, Sun.-Fri.
Trading in expiring contracts closes at noon
on the last trading day |
|
Ticker Symbols: |
Open Outcry: W. Electronic (a/c/e): ZW |
|
Daily Price Limit: |
30 cents/bu ($1,500/contract) above or below
the previous day's settlement price
(expandable to 30 cents/bu). No limit in the
spot month (limits are lifted two business
days before the spot month begins) |
|
CBOT Wheat Options |
|
Trading Unit: |
One CBOT® Wheat futures contract (of a
specified contract month) of 5,000 bu |
|
Tick Size: |
1/8 cent/bu ($6.25/contract) |
|
Strike Price Intervals: |
5 cents/bu for the first two months and 10
cents/bu for all other months. At the
commencement of trading, list 5 strikes
above and 5 strikes below the at-the-money
strike |
|
Contract Months: |
Jul, Sep, Dec, Mar, May; a monthly (serial)
option contract is listed when the front
month is not a standard option contract. The
monthly option contract exercises into the
nearby futures contract. For example, an
August option exercises into a September
futures position |
|
Last Trading Day: |
For standard option contracts: The last
Friday preceding the first notice day of the
corresponding wheat futures contract month
by at least two business days.
For serial option contracts: The last Friday
which precedes by at least two business days
the last business day of the month preceding
the option month |
|
Exercise: |
The buyer of a futures option may exercise
the option on any business day prior to
expiration by giving notice to the Board of
Trade Clearing Corporation by 6:00 p.m.
Chicago time. Option exercise results in an
underlying futures market position. Options
in-the-money on the last day of trading are
automatically exercised |
|
Expiration: |
Unexercised options expire at 10:00 a.m.
Chicago time on the first Saturday following
the last day of trading |
|
Trading Hours: |
Open Outcry: 9:30 a.m. - 1:15 p.m. Chicago
time, Mon-Fri.
Electronic (a/c/eSM): 8:30 p.m. - 6:00 a.m.
Chicago time, Sun.-Fri.
Trading in expiring contracts closes at the
same time as the underlying futures contract
(1:15 p.m.) on the last trading day |
|
Ticker Symbols: |
Open Outcry: WY for calls/WZ for puts
Electronic (a/c/e): OZW |
|
Daily Price Limit: |
30 cents/bu ($1,500/contract) above or below
the previous day's settlement premium.
Limits are lifted on the last trading day |
Wheat Futures Contract Specifications
Kansas City Board of Trade
|
Hard Red Winter Wheat Futures
(Trade commenced 1876)
|
|
Trading Hours:
|
9:30 a.m. to 1:15 p.m., Central Time |
|
Contract Unit:
|
5,000 bushels |
|
Ticker Symbol:
|
KW |
|
Delivery Months:
|
July, September, December, March, May |
|
Price Quotation:
|
Dollars, cents and 1/4-cents per bushel |
|
Min. Price Fluctuation:
|
1/4 cent ($12.50 per contract) |
|
Max. Price Fluctuation:
|
30 cents ($1,500 per contract) above or
below previous day's settlement price |
|
Speculative Position Limits:
|
Combined with wheat options for a net long
or net short futures - equivalent maximum
of:
Spot Month *: 600 contracts
Single Month: 3,000 contracts
All Months: 4,000 contracts
* Spot month limits go into effect on a
contract at the close of trade the day
before it's first delivery notice day. |
|
Delivery Mechanism:
|
Physical; registered warehouse receipt
issued by regular elevators |
|
Deliverable Grades:
|
No. 2 at contract price; No. 1 at a 1
1/2-cent premium; No. 3 at a 3 cent
discount, changing to a 5-cent discount with
the July 2003 contract |
|
Delivery Points:
|
Kansas City, Mo. - Kans. and Hutchinson,
Kans. |
|
Delivery Notices:
|
Must be issued and delivered to the KCBT
Clearing Corp. before 4:00 p.m. on the
second business day preceding the day of
delivery, except on the last notice day of
the delivery month, when delivery notices
may be delivered to the Clearing Corp. until
2:00 p.m. on the last notice day (business
day preceding the last delivery day) |
|
Last Trading Day:
|
There is no trading during the last seven
(7) business days of the liquidating month |
|
First Notice Day:
|
The business day preceding the first
business day of the liquidating month |
|
First Delivery Day:
|
The first business day of the liquidating
month |
|
Last Notice Day:
|
The business day preceding the last business
day of the liquidating month |
|
Hard Red Winter Wheat Options
(Trading Began Oct. 30, 1984)
|
|
Trading Hours:
|
9:30 a.m. to 1:25 p.m., Central time |
|
Underlying Asset:
|
One KCBT hard red winter wheat futures
contract |
|
Ticker Symbol:
|
Calls: HC. Puts: HP |
|
Delivery Months:
|
Serial |
|
Strike Price Intervals:
|
Integral multiples of 10 cents per bushel |
|
Listing of Strikes:
|
New strikes are listed to maintain 30 above
and 30 below the at-the-money strike in
increments of 10 cents |
|
Price Quotation:
|
Dollars, cents and 1/8-cents per bushel |
|
Min. Price Fluctuation:
|
1/8 cent ($6.25 per contract) |
|
Max. Daily Price Fluctuation: |
30 cents ($1,500 per contract) above or
below previous day's settlement price |
|
Speculative Position Limits:
|
Spot Month *: 600 contracts
Single Month: 3,000 contracts
All Months: 4,000 contract |
|
Last Trading Day:
|
1:00 p.m., Central time, on the Friday at
least two (2) business days before first
notice day for wheat futures |
|
Exercise:
|
Any time prior to expiration by giving
notice to the KCBT Clearing Corp. by 4:00
p.m., Central time, on any trading day up to
and including the last trading day
|
Wheat Futures Facts
1 bushel of wheat weighs 60 pounds
1 bushel of wheat makes 73 one pound loaves of bread
North Dakota State University says that the yield of spring wheat
that is planted after April begins to decline by a third of a bushel
for each day of delay.
To see other grain
futures visit corn futures
and soybean futures.
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