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KCBT Wheat Options Set Two New Records: Volume And Open Interest

Date 19/06/2002

Trading in the Kansas City Board of Trade wheat options contract set another new single-day record of 9,491 contracts on Tuesday, June 18 and wheat options open interest climbed above 50,000 contracts for the first time ever since the inception of trading in 1984.

The previous single-day volume record was set only two trading sessions ago, on Friday, June 14, at 6,750 contracts, as market participants were either liquidating their positions or rolling their position into the September contract. However, Tuesday's increase in volume led to a 5,273 contract increase in open interest, putting open interest at 50,715 contracts and breaking the previous open interest record of 47,713 contracts, which was set almost a year ago, on June 21, 2001.

Traders attributed the surge in volume on Tuesday to market participants utilizing KCBT wheat options for protection against declining prices, choosing to use options as a hedging tool as they become better educated about the increased viability of KCBT wheat options contracts. Additionally, traders noted increased over-the-counter participation near the close of the session.

Throughout this year, traders have said an increasing number of people have been looking at diversified strategies for risk management and utilizing wheat options as part of their risk management plan. In the past year, the KCBT wheat options pit has seen increased depth in the market, increased liquidity and tighter markets. These factors have led to a more efficient marketplace, particularly when added to a larger number of both local traders and brokers in the wheat options pit.

Options trading has seen large gains in volume in 2002, continuing the trend which started several years ago. Year-to-date volume through June 18 amounts to 187,520 contracts, which is 25.4 percent ahead when compared to 2001 volume through the end of June. In fact, June 2001 was the largest-volume month ever for wheat options at the KCBT, with 40,663 contracts trading. With eight trading days remaining in the month, volume is just 7,113 contracts shy of breaking that all-time monthly record.

The Kansas City Board of Trade, chartered in 1876, is the world's largest futures market for hard red winter wheat. Options give a buyer the right, but not the obligation, to buy or sell a KCBT wheat futures contract at a specified price.