Nickel 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 nickel options work
The examples use options on nickel 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 stainless-steel producer may use nickel calls. Confirm that the LME benchmark is appropriate for the grade and form being purchased.
The cost of one option
One LME contract represents 6 tonnes. At a premium of $500 per tonne, one option costs $3,000 ($500 × 6).
Assume the futures price and strike are both $16,000 per tonne. The call and put premiums are each $500 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 nickel calls
Suppose you expect nickel prices to rise and buy one $16,000 call for $3,000.
If the underlying future reaches $17,500 per tonne at expiration, buying at $16,000 gives an advantage of $1,500 per tonne. Across 6 units, that is $9,000. After the premium, your net profit is $6,000.
At $16,000 or below, the call expires worthless and the loss is $3,000. Breakeven is $16,500 per tonne: strike plus premium. At $16,250, the call has value but still loses $1,500 after its cost.
Buying nickel puts
If you expect prices to fall instead, buying one $16,000 put costs $3,000 in this example.
At a futures price of $14,500 per tonne, selling at the strike gives an advantage of $1,500 per tonne. The option is worth $9,000 at expiration, leaving a $6,000 net profit after the premium.
At $16,000 or above, the put expires worthless. Breakeven is $15,500 per tonne. At $15,750, the price has fallen, but the put still loses $1,500: 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.
Nickel price chart
Capital.com Nickel 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.
