Aluminum options let a buyer take a view on price changes while paying a premium for a limited period. A call offers exposure to a rise; a put offers exposure to a fall. The size of the move and the premium determine whether the buyer makes money.
How aluminum options work
The examples use options on high-grade aluminium futures. A call gives the right to enter a long futures position at the strike price. A put gives the right to enter a short futures position at that price.
A manufacturer buying aluminium may use calls to help manage rising input costs. The LME price does not include every regional delivery premium.
The cost of one option
One LME contract represents 25 tonnes. At a premium of $100 per tonne, one option costs $2,500 ($100 × 25).
Assume the futures price and strike are both $2,500 per tonne. The call and put premiums are each $100 for comparison, not current quotes. Results below are at expiration, before fees, with any futures position from exercise immediately closed at the stated price.
Buying aluminum calls
Suppose you expect aluminum prices to rise and buy one $2,500 call for $2,500.
If the underlying future reaches $2,800 per tonne at expiration, buying at $2,500 gives an advantage of $300 per tonne. Across 25 units, that is $7,500. After the premium, your net profit is $5,000.
At $2,500 or below, the call expires worthless and the loss is $2,500. Breakeven is $2,600 per tonne: strike plus premium. At $2,550, the call has value but still loses $1,250 after its cost.
Buying aluminum puts
If you expect prices to fall instead, buying one $2,500 put costs $2,500 in this example.
At a futures price of $2,200 per tonne, selling at the strike gives an advantage of $300 per tonne. The option is worth $7,500 at expiration, leaving a $5,000 net profit after the premium.
At $2,500 or above, the put expires worthless. Breakeven is $2,400 per tonne. At $2,450, the price has fallen, but the put still loses $1,250: the move has not covered its premium.
Before expiration
An option can be sold to close before expiration when a market is available. Its price then includes the effect of remaining time and implied volatility, so an earlier trade need not break even at the expiration price calculated above.
The purchased option can lose its whole premium. Exercise can create a futures position requiring margin and exposing you to further gains or losses. An uncovered seller can lose more than the premium received.
Aluminum price chart
Capital.com Aluminum CFD reference price. This broker CFD (contract for difference) is a market reference, not a spot price or an exchange futures contract. Prices and quoting units may differ from the contracts described in this guide. Check the widget timestamp and market status; prices may be delayed.
