Tin Options Explained

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Contents

Tin Options Explained

Tin options are option contracts in which the underlying asset is a tin futures contract.

The holder of a tin option possesses the right (but not the obligation) to assume a long position (in the case of a call option) or a short position (in the case of a put option) in the underlying tin futures at the strike price.

This right will cease to exist when the option expire after market close on expiration date.

Tin Option Exchanges

Tin option contracts are available for trading at London Metal Exchange (LME).

LME Tin option prices are quoted in dollars and cents per metric ton and their underlying futures are traded in lots of 5 tonnes (11023 pounds) of tin.

Exchange & Product Name Underlying Contract Size Exercise Style Option Price Quotes
LME Tin Options 5 ton
(Full Contract Specs)
American N.A.

Call and Put Options

Options are divided into two classes – calls and puts. Tin call options are purchased by traders who are bullish about tin prices. Traders who believe that tin prices will fall can buy tin put options instead.

Buying calls or puts is not the only way to trade options. Option selling is a popular strategy used by many professional option traders. More complex option trading strategies, also known as spreads, can also be constructed by simultaneously buying and selling options.

Tin Options vs. Tin Futures

Additional Leverage

Limit Potential Losses

As tin options only grant the right but not the obligation to assume the underlying tin futures position, potential losses are limited to only the premium paid to purchase the option.

Flexibility

Using options alone, or in combination with futures, a wide range of strategies can be implemented to cater to specific risk profile, investment time horizon, cost consideration and outlook on underlying volatility.

Time Decay

Options have a limited lifespan and are subjected to the effects of time decay. The value of a tin option, specifically the time value, gets eroded away as time passes. However, since trading is a zero sum game, time decay can be turned into an ally if one choose to be a seller of options instead of buying them.

Learn More About Tin Futures & Options Trading

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Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

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Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Tin Options Explained

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. Support for this pricing relationship is based upon the argument that arbitrage opportunities would materialize if there is a divergence between the value of calls and puts. Arbitrageurs would come in to make profitable, riskless trades until the put-call parity is restored.

To begin understanding how the put-call parity is established, let’s first take a look at two portfolios, A and B. Portfolio A consists of a european call option and cash equal to the number of shares covered by the call option multiplied by the call’s striking price. Portfolio B consist of a european put option and the underlying asset. Note that equity options are used in this example.

Portfolio A = Call + Cash, where Cash = Call Strike Price

Portfolio B = Put + Underlying Asset

It can be observed from the diagrams above that the expiration values of the two portfolios are the same.

Call + Cash = Put + Underlying Asset

Eg. JUL 25 Call + $2500 = JUL 25 Put + 100 XYZ Stock

If the two portfolios have the same expiration value, then they must have the same present value. Otherwise, an arbitrage trader can go long on the undervalued portfolio and short the overvalued portfolio to make a riskfree profit on expiration day. Hence, taking into account the need to calculate the present value of the cash component using a suitable risk-free interest rate, we have the following price equality:

Put-Call Parity and American Options

Since American style options allow early exercise, put-call parity will not hold for American options unless they are held to expiration. Early exercise will result in a departure in the present values of the two portfolios.

Validating Option Pricing Models

The put-call parity provides a simple test of option pricing models. Any pricing model that produces option prices which violate the put-call parity is considered flawed.

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Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

The Tin Plating Process: A Step-By-Step Guide

Tin has probably been a part of your life since the time you first saw the Tin Man in the Wizard of Oz as a child. Of course, the use of tin extends well beyond the creation of a fictional movie character — it has many practical applications in our daily lives. We’re all familiar with tin cans that are used for holding many types of food and beverages; these containers are actually manufactured from sheet steel that is coated with a thin layer of tin known as tinplate.

Today, roughly half of all tin produced is used in soldering applications. Tin is also used in the production of pewter, bronze and phosphorous bronze. Tin salts are sometimes sprayed onto windshields and window glass to provide an electrically conductive coating. The window glass itself is often made by floating molten glass onto molten tin, which produces a flat surface. The metal used to manufacture bells is often a combination of bronze and tin. Additionally, tin and tin alloys offer tremendous value for electroplating, which is the process of depositing a coating of metal onto the surface of a material via an electrical current.

Fast Facts About Tin

Tin is a soft, malleable, silvery-white metal that is available in abundance throughout many parts of the world. The extraction of tin dates back to around 3000 B.C. during the Bronze Age. Bronze is a yellowish-brown alloy of copper and tin that typically consists of about one-third tin. The earliest bronze objects were found to contain a small tin component.

The Chinese began to engage in the practice of tin mining around 700 B.C. Today, tin can be found in China, Thailand and Indonesia, and it is also mined in Brazil, Peru and Bolivia. Tin is obtained by carbothermic reduction of the oxide ore, which is produced by heating the ore in a furnace.

Other key tin facts:

  • Tin is the 49th most abundant element in the Earth’s crust.
  • Tin is listed on the Periodic Table of Elements under the atomic symbol “Sn” and the atomic number of 50.
  • Tin is not a native element, meaning it must be extracted from ores as opposed to being found in a natural state.
  • Tin can be extracted from various ores, but the most common ore is Cassiterite (SnO2).
  • While tin in its metallic form is non-toxic, certain tin compounds can be poisonous.
  • The small amount of tin in the U.S. is primarily found in Alaska and California.
  • Tin’s crystalline composition results in a distinctive screaming sound when the metal is bent, which is known as the “tin cry”.

The Benefits of Tin in the Electroplating Process

Why is tin such a popular choice for electroplating? Perhaps the biggest reason is that tin plating — or “tinning” — is an extremely cost-effective process. Because tin is so readily available, it is much less expensive than pricier metals such as gold, platinum or palladium. Tin also offers excellent solderability, as well as superior protection against corrosion.

Tin plating can produce a whitish-gray color that is preferable when a dull or matte appearance is desired. It can also produce a shiny, metallic look when a bit more luster is preferred. Tin offers a decent level of conductivity, making tin plating useful in the manufacturing of various electronic components. Tin is also FDA approved for use in the food service industry.

Industries That Make Use of Tin Plating

The benefits listed above make tin the metal of choice for plating applications in a wide range of industries including:

  • Aerospace
  • Food Service
  • Electronics
  • Telecommunications
  • Jewelry Manufacturing

Sharretts Plating services many of these industries, contact us today for a free quote!

Basic Tin Plating Processes

There are three basic types of tin plating, each of which relies on the deposition of an electrolytic tin solution onto the surface of a metal object:

  • Barrel plating: Barrel plating is normally used for plating smaller parts and entails placing the objects in a specially constructed vessel, commonly referred to as a barrel. The barrel slowly rotates while immersed in the electrolytic plating solution. Barrel plating of tin is extremely cost-effective, although it takes a relatively long time to complete the plating process.
  • Rack plating: Rack plating is the preferred option for plating tin on larger or more delicate parts that may not be suitable for the barrel plating process. With rack plating, the objects are hung on a rack and immersed in the plating solution. Although rack plating is more labor-intensive and therefore more expensive than barrel plating, it offers greater control over plating thickness and can be more effective in reaching cavities deep within the object.
  • Vibratory plating: Also used for delicate parts, vibratory plating involves placing the parts in a basket equipped with metal buttons that also contains the electrolytic plating solution. A generator is used to produce a vibrating action that causes the parts to move and make contact with the metal buttons. Vibratory plating is typically the most expensive form of tin plating and requires a special drying process that may cause the parts to bend.

Tin Plating Process Elements

Tin can be electrodeposited onto just about any type of metal. Let’s take a closer look at the specific components of an effective tin plating process:

1. Cleaning: It is vital to purify the substrate — the part that receives the tin coating — prior to immersion into the plating bath. Cleaning removes oil, grease and other surface contaminants that can reduce the effectiveness of the plating process.

Cleaning is a multi-step process that can vary somewhat depending on the composition of the substrate and the amount of grime and debris that it contains, as well as the types of cleaning equipment available for use. In general, the cleaning process includes:

  • Grit blasting: This is the process of using pressurized air to project media such as crushed glass, aluminum oxide, silicon carbide, steel, corn cob or walnut shells to remove foreign matter from a surface.
  • Boiling: Boiling the substrate in water can be an effective method of removing grease and oil, without having to resort to using chemical additives.
  • Electrolytic degreasing: Immersing the substrate in an electrolytic solution will remove grease and oil that accumulates in cracks, crevices and other hard-to-reach surface areas.
  • Rinsing: Rinsing the substrate in water after electrolytic degreasing removes any remaining cleaning solution and surface debris.

2. Preparing the Plating Bath

The next step is to prepare an electrolytic solution, also known as a plating bath. Electrolytic tin plating baths can be comprised of acid tin, alkaline tin or methyl sulphonic acid solutions. A plating bath includes tin that is dissolved to form positively charged ions that are suspended in the solution, as well as other chemical additives. The bath serves as the conductive medium during electrodeposition.

Acid baths tend to be used with greater frequency, because they result in a higher deposition rate. However, while acid baths generally provide a uniform coating, they do not always reach holes or other surface irregularities with a high level of consistency.

3. The Electrodeposition Procedure

Once the substrate has been clean and immersed in the electrolyte bath, it is ready for electrodeposition of the tin coating. The object is typically placed in the center of the specially designed tank that contains the electrolytic solution. The object serves as the cathode, which is the negatively charged electrode in the electrical circuit. The anodes, which are the positively charged electrodes in the circuit, are placed near the edge of the plating tank.

The next step is to introduce a low-voltage DC current into the plating bath. A device known as a rectifier is used to convert AC power to the DC current. The introduction of the electrical current ultimately causes positively charged ions at the anode to flow through the electrolyte in the plating bath toward the negatively charged cathode (substrate), where they are electrodeposited onto the surface. The current then flows back toward the anode to complete the circuit.

4. Post Electroplating Process

Post-treatment is usually not required at the conclusion of the tin plating process. Passivation — which is the application of a light coating of protective material — may be used in special plating applications to provide additional corrosion protection or enhance the reactive properties of the tin. Heat treatment may also be used to prevent hydrogen embrittlement, which is a weakening of metal caused by exposure to hydrogen.

Common Tin Plating Issues

A number of issues can occur during the tin plating process that can negatively impact the final outcome. These include:

  • Tin “Whiskers”: Small, sharp protrusions known as whiskers can form on the surface of the pure-tin-plated objects long after the conclusion of the plating process. These microscopic metal fibers are not visible to the naked eye, but they can cause significant damage to the finished product.Because they are electrically conductive, whiskers can cause short circuits in electronic components. Tin whiskers have even been known to lead to the failure of computer systems and satellites, as well as disruptions in the operations of nuclear power plants.It is not known what causes tin whiskers to form, and there is no proven method for totally preventing their occurrence. There has been some success in limiting the formation of tin whiskers through the modification of the crystalline structure of the tin deposit, although this method is far from fool-proof.
  • Lack of uniform thickness: In some cases, the tin may not be deposited uniformly on the plated object. Sometimes, the shape and contour of the object makes it difficult to achieve the desired thickness, which is typically in the range of ten to 20 microns.When plating on metal objects with sharp corners, the tin may be deposited with greater thickness on the outer corners and reduced thickness in recessed areas. This can often be remedied by repositioning the anodes and modifying the density of the DC current.
  • Perishable solderability: While tin-plated metals are known for their excellent solderability, this characteristic will diminish over time. The soldering lifespan can be extended through proper deposit specification, appropriate substrate preparation and proper packaging of the plated components. Sealing plated products in nitrogen-filled bags has been known to result in a ten-fold increase of solderability shelf-life.

Tin Alloy Plating

One way to enhance the tin plating process is by co-depositing (alloying) tin with another metal or several metals. Commonly applied tin alloys include:

  • Tin-lead: Provides corrosion resistance and excellent solderability and can produce a soft, ductile finish while helping prevent tin whiskers.
  • Tin-copper: Improves the overall strength of the coating, but it may also make it more brittle. It can also lead to insufficient wetting for soldering applications and promote the development of tin whiskers.
  • Lead-tin-copper: This combination is often used for friction reduction on sliding engine bearings.
  • Tin-silver: Improves overall mechanical strength and increases maximum service temperatures, but the silver component can make this alloy cost-prohibitive for many companies.
  • Tin-zinc: Offers a high melting point and superior fatigue strength, but results in poor wettability and limited protection against corrosion.
  • Tin-bismuth: Ideally suited for low-temperature plating applications, this alloy also offers good wettability and can limit whisker formation. However, it may not be compatible with objects containing lead, and the low melting point makes it unsuitable for most high-temperature plating processes.

Consider a Tin-Lead Alloy for Tin Whisker Reduction

If tin whiskers are a concern in your manufacturing environment, then you should strongly consider a tin-lead plating alloy. Unlike pure tin, as previously mentioned, tin-lead can be effective at preventing formation of whiskers, making it an excellent choice in the manufacturing of electronic components such as printed circuit boards, connectors and semiconductors. Because both metals feature a high hydrogen overvoltage, the deposition of a tin-lead alloy can be produced via strong acid solutions without the addition of complexing agents.

In addition to whisker reduction, a tin-alloy can offer greater protection against corrosion than pure tin alone. Tin-lead also provides excellent solderability and can produce a softer, more ductile finish. Because of its ductility, tin-lead can prevent damage to the underlying metal during rigorous manufacturing processes such as stamping.

Sharretts Plating Can Handle All of Your Tinning Needs

Sharretts Plating Company has been in business since 1925. Over the course of nine decades, we have developed and perfected an effective and affordable tin plating process that can be customized to your specific operating requirements. In addition to pure tin plating, we also offer an innovative tin-lead plating process that can significantly reduce the formation of tin whiskers on your electronic components.

Contact us today to learn more about our tin plating process and how it can be tailored to your operation. We’ll also be happy to schedule a tin plating consultation and provide a free, no-obligation quote.

A great way to keep up with the latest tin plating developments is to sign up to receive free monthly emails from SPC. They contain lots of useful information about plating and the metal finishing industry in general.

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