Zinc call options give a buyer exposure to rising futures prices. Follow one contract from premium paid to its result at expiration.
How zinc options work
The examples use options on zinc 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 galvaniser may use zinc calls to protect purchase costs. A mine may use puts, while retaining exposure to its processing terms and local premiums.
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 $2,800 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 zinc calls
Suppose you expect zinc prices to rise and buy one $2,800 call for $2,500.
If the underlying future reaches $3,100 per tonne at expiration, buying at $2,800 gives an advantage of $300 per tonne. Across 25 units, that is $7,500. After the premium, your net profit is $5,000.
At $2,800 or below, the call expires worthless and the loss is $2,500. Breakeven is $2,900 per tonne: strike plus premium. At $2,850, the call has value but still loses $1,250 after its cost.
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.
Zinc price chart
LME zinc 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 Zinc chart on TradingView.
