The option gives the buyer the right, but not the obligation, to take the underlying futures position, so the premium is his maximum financial liability. The option seller is obligated to take the opposite side of the futures position if the buyer takes his futures position, so the seller must set up a margin account and meet margin calls if the market moves against the option seller's position. Premiums are determined by open outcry in the trading pits of commodity exchanges such as the Chicago Board of Trade, New York Cotton Exchange, Chicago Mercantile Exchange, and the Kansas City Board of Trade. The two specific aspects of a futures contract option are the underlying futures contract and the strike price. Option contract sizes are consistent with their underlying futures contract counterparts and are listed for each of the traded contract months of a commodity.
Options expire approximately a month before the associated futures contract.
In other words, a March corn option expires in February. The choice of action is left entirely to the option buyer. Option Strike Prices Option strike prices trade in specific increments above and below the price at which futures are trading for each commodity. Terminology of Option Premiums Option premiums have two components- intrinsic value and time value. Intrinsic value is the built-in value of an option.