Tin 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 tin options work
The examples use options on tin 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.
An electronics producer may use tin calls to manage metal costs. The price of solder also depends on its other ingredients and fabrication.
The cost of one option
One LME contract represents 5 tonnes. At a premium of $1,000 per tonne, one option costs $5,000 ($1,000 × 5).
Assume the futures price and strike are both $25,000 per tonne. The call and put premiums are each $1,000 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 tin calls
Suppose you expect tin prices to rise and buy one $25,000 call for $5,000.
If the underlying future reaches $28,000 per tonne at expiration, buying at $25,000 gives an advantage of $3,000 per tonne. Across 5 units, that is $15,000. After the premium, your net profit is $10,000.
At $25,000 or below, the call expires worthless and the loss is $5,000. Breakeven is $26,000 per tonne: strike plus premium. At $25,500, the call has value but still loses $2,500 after its cost.
Buying tin puts
If you expect prices to fall instead, buying one $25,000 put costs $5,000 in this example.
At a futures price of $22,000 per tonne, selling at the strike gives an advantage of $3,000 per tonne. The option is worth $15,000 at expiration, leaving a $10,000 net profit after the premium.
At $25,000 or above, the put expires worthless. Breakeven is $24,000 per tonne. At $24,500, the price has fallen, but the put still loses $2,500: 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.
Tin price chart
LME tin futures. A continuous futures chart joins contract months; it is not an individual expiry. Check the displayed quotation and timestamp.
This market is not available in the embedded chart. Open the Tin chart on TradingView.
