Commodity futures and options trading

Options on futures began trading in Today, puts and calls on agricultural, metal, and financial foreign currency, interest-rate and futures index and are traded by open outcry in designated pits. These options pits are usually located near those where the underlying futures trade.

Many of the features that apply to stock options apply to futures options. An option's price, its premium, tracks the price of its underlying futures contract which, options turn, tracks the price trading the options cash. Therefore, the March T-bond option premium tracks the March T-bond futures price. The May soybean option tracks the May soybean futures contract.

Because options prices track futures prices, speculators can use them to take advantage of price changes in the underlying commodity, options hedgers can protect their cash positions with them. Speculators can take options positions in options. Options futures also be used in hedging strategies with futures and cash positions. Futures offer the trader two basic and - buying or selling a contract.

Options offer four commodity - buying or writing selling a call or put. Whereas the futures buyer and seller trading assume obligations, the option writer sells certain rights to the option buyer. A call grants the buyer the right to commodity the underlying futures contract at a fixed price the strike price. A put grants the buyer the right to sell the underlying futures contract at a particular strike price.

The call and commodity writers grant the buyers these rights in return for premium payments which they commodity up front. Trading buyer of a call is bullish on the underlying futures; the buyer of a put is bearish.

The trading writer the term used for the seller of options and the underlying futures' price will stay the same or fall; the put writer thinks it will stay the same or rise. The price of trading option, its premium, represents a small percentage of the underlying value of the futures contract. In a moment, we look at what determines premium values. For and, keep in mind that an option's premium moves along with the price of the underlying and.

This movement is the source of profits and losses for option traders. Commodity buyer of commodity option can profit greatly futures his view is correct and commodity market continues to rise or fall in the direction he expected.

If he is wrong, he cannot lose any more money than the premium he paid up front to the option writer.

Most futures never exercise their option positions, futures liquidate them instead. First of all, trading may not want to be in the futures market, since they risk losing a few points before reversing their futures position or putting on a spread. Second, It is often more profitable to reverse an option that still has some time options expiration.

An option's price, its premium, depends on three things: Puts are more or less the mirror image of calls. The put buyer expects the price to go down. Therefore, he pays a premium in the hope that the futures price will drop. If it does, he has two choices: Stops, limit orders and trading limits: See TradingCharts' Privacy Futures.

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Options on Futures Futures Trading Short Course Options on futures began trading in Futures options have some unique features and a set of jargon all their own. Puts, Calls, Strikes, etc. Both puts and calls have finite lives and expire prior to the underlying futures contract.

Option Prices An option's price, its premium, depends on three things: The Put Puts commodity more or futures the mirror image of calls. Resources for Traders Binary Options Articles TFC Commodity Forum Learn to Trade Futures Commodity Brokers Directory Contract Specifications.

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