Futures-Style Margined Options: The Absence of Early Exercise Premium
Why This Matters When I first studied options, most textbook examples were equity-style: you pay a premium upfront, and at expiry (or whenever you choose to exercise, if the option is American), you receive the payoff. That framing stuck with me for a long time. When I started working on commodity derivatives, I encountered a different world. Many options in commodity markets are traded under futures-style margining. No premium changes hands at inception, and instead the option is margined daily like a futures contract. This is common across a wide range of exchange-traded products: options on WTI crude oil futures at the CME, options on Henry Hub natural gas futures, options on corn and wheat futures, and options on carbon emissions futures, to name a few. ...