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Futures Options Trading-Commodity Options on Futures

 

The No Nonsense Guide to Buying and Selling Options

 

Futures options trading has become very popular because of recent market volatility. There are two types of options on futures available to invest in. A call option gives the purchaser the right but not the obligation to buy the underlying commodity and a put option gives the option buyer the right but not the obligation to sell the underlying commodity.

The purchaser of an options on futures contract is at risk for the total cost of the futures option. This cost includes the premium paid to the option seller, commissions and fees. For example, you bought 10 crude oil calls for a total cost of $5,000 and therefore your maximum risk of loss for that trade is $5,000.

There are many terms that options on futures traders must know. The premium is the cost that the futures option buyer must pay to the futures option seller or grantor. The strike price is the price at which the option buyer has the right but not the obligation to purchase or sell the underlying commodity depending on if it is a call or put. The expiration date is the day that the option either expires worthless or becomes a futures contract if it is in the money. In the money refers to the amount that the option is either above or below the strike price depending on if it is a call or a put. Learn More >>

 

There are various commodity options on futures available for futures options trading that are liquid enough to trade.

  • Crude oil, unleaded gas, heating oil, natural gas

  • Gold, silver, copper

  • Corn, soybeans, wheat, soy oil, soy meal

  • Cotton, coffee, cocoa, sugar

  • Live cattle, feeder cattle, lean hogs, pork bellies

 

Click here to learn about other available options on futures.

Futures options trading carries substantial risk of loss. The purchaser of an options on futures contract is at risk for 100% of the total cost of the option including premium, commissions and fees. Options on futures sellers have theoretically unlimited risk to the upside and substantial risk to the downside.

To profit from the purchase of an options on futures contract the purchaser must sell the option back to the market (offset) for a higher value than the total purchase cost or let it expire if it is in the money by a profitable amount. However, if it expires in the money, it will become a futures contract at that point and carry with it the potential for unlimited loss associated with a futures contract.

 

The No Nonsense Guide to Buying and Selling Options

 

 

Also visit: online commodity trading

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Copyright 2004-2015 TKFutures Inc. All Rights Reserved.

The information presented in this commodity futures and options site is not investment advice and is for informational purposes only. No guarantees are being made to its accuracy or completeness. This information can be considered a solicitation to enter into a derivatives trade. Investing in futures and options carries substantial risk of loss and is not suitable for some people. Past or simulated performance is not indicative to future results.