Traders await first ag options expiry under new trading hours
* Expanded trade gives options traders an extra window
* June ag options set to expire at 1:15 PM.
* Electronic futures trading closes at 2:00 PM
* Low volume in June options may cushion volatility
* Expiration could be wild in July and future months
By Sam Nelson
CHICAGO, May 25 (Reuters) - Traders eagerly await the first expiration of agricultural options on Friday under the newly expanded 21 hour per day electronic trading that began on Monday as part of the CME Group's goal to match rival Intercontinental Exchange's move to capture market share.
Chicago Board of Trade June ag options will expire at 1:15 p.m. CDT (1815 GMT) but futures trading will continue to 2:00 PM for the first time. The new trading hours have raised some concern even though the low volume June options contracts are much less significant and probably less volatile than the upcoming expiration of July options.
"That's a big question that everyone has at this point whether it's a commercial, local or fund. The 45 minutes of extra futures trade after expiration opens up a whole new box of worms," said Matt Pierce, options strategist for GrainAnalyst.com.
"At least it's June options expiration first which is very low volume, regarding July expiration its a major concern for everyone," Pierce said.
Until now, options traders holding a position at expiration have had to let the exchange know by 4:00 PM whether or not they wanted to exercise their options position.
"It gives me as a local 45 minutes of extra time to possibly exercise my options position. For example if I'm holding a call with a $6 strike exercise price and before 2:00 PM futures go up to say $6.05 I can exercise my position," said Justin Steinberg a local corn options trader.
If no call was made by the options trader to the exchange, their position would be exercised either in the money or if out of the money, it would exercise worthless.
"In the past we've had to wait until 4:00 PM to exercise. They still have to be exercised by then but there is another 45 minute window of time for futures to move which could help exercising a position," Steinberg said.
"So someone on the other side of the exercise may not be so happy. It can be good or not, depending on your position," he said.
Traders have always been concerned that big orders may be entered in the markets near expiration that could skew the market in their favor.
Such is the high risk of trading.
Corn futures and options traders will closely be following Friday's expiration for hints of what may be coming down the road but some traders already see potential drama at today's expiry.
"New buying in the $5.90 and $5.95 June calls (corn) Thursday certainly makes you wonder if there's potential for some mischief, especially with the automatic exercise of in-the-money positions," said Bryce Knorr, senior editor for Farm Futures Magazine.
In-the-money positions could be automatically exercised during the remaining 45 minutes of CBOT corn futures trade on Friday.
"You can mark my word that sometime in the next 12 months some cowboy hedge fund or whatever will make a wild play in futures which will really impact the options expiration," said Matthew Connelly a local options and futures broker.
"I don't think there will be much going on in this expiration because of the low open interest but when we get to July expiration it could be a different story," Connelly said.
(Reporting By Sam Nelson)
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