What is option trading and commodity options?
You need to know about options trading first to understand options trading in commodity futures. Options can be defined as derivatives product like futures contracts but different, because in that risk is limited for buyers while they can gain unlimited profit. Commodity tips can be very helpful if you wish to do options trading in commodity futures. By this you can minimize the chances of risk.
In options, the seller return is restricted to premium buyers pay to buy an option that gives them the right to buy (call option) or right to sell (put). The seller has an contract to buy from the put buyer or to sell to the call buyer. Holders of options ending in-the -money will have a choice to either square off at a profit or to convert into a futures position.
Let us know about commodity options.
Commodity options are of two types, first one is a call option and second one a put option. The buyer in this pay a payment to the seller of the option for the right and not the obligation, to take delivery of the underlying commodity futures contract. Always there are two sides of every option trade i.e a buyer and a seller. If the option buyer is making or earning money then the option seller is loosing money.
Call options: This gives the buyer the right but not the accountability to buy the underlying at the stated strike price within a specific period of time. Whereas the seller of a call option is obligated to deliver a long position in the underlying futures contract from the strike price should the buyer opt to exercise the option.
Put options: This also gives the buyer the right but not the obligation, hence the buyer could not sell the underlying at the stated strike price within a specific period of time. Wherein the seller of a put option is obligated to deliver a short position from the strike price (accept a long futures position) in the case that the buyer chooses to exercise the option.
Why should you trade in commodity options?
As the market is growing day by day, along with this an number of option trading strategies are being available in the futures markets. However the method or strategy you choose should be based on your personality, risk capital and risk aversion.
In futures market, commodity options provide a flexible and effective way to trade. Moreover, the options on futures offer investors the ability to capitalize on leverage while still giving them the ability to manage risk. Now a days Intraday tips are being used to trade in market, this helps the investors to earn more with minimum risk.