How Does the Concept of ‘Implied Basis’ Relate to Options on Futures?

The term 'implied basis' is not a standard options on futures concept; however, options on futures allow a trader to take a position on the volatility of the futures price. The option's price is a function of the underlying futures price, not the spot price.

Therefore, a trader must consider the basis (Futures – Spot) when hedging a spot position with options on futures. The relationship between the option's implied volatility and the basis is key for advanced strategies.