August 5, 2011
Typically, when you learn to trade options, there are two kinds of commodity options namely, call option and put option. The ‘call option’ and ‘put option’ varies in terms of buying and selling before expiration date. The specified price mentioned in the option is called a ‘strike price’. Options are traded as a futures contract, which is a promise to on a commodity on a future date for a specified or ‘strike price’.
When you learn to trade options, you’ll see futures are associated to commodities. Hedgers are common story for farmers, business organizations, or even individuals. They get into a contract to be able to sell a commodity at an assured price. Normally, they utilize commodity futures to shield themselves from unexpected dangers of fluctuating prices. The Commodity Futures Trading Commission (CFTC) governs the futures markets. The CFTC was formed with the intention to prevent fraud in the futures market.
In a typical futures contract, the risk faced by the seller and the holder is almost the same.
Futures contracts are called as forward contracts as they make a promise to carry out a specific transaction at a fixed future date. You would want to learn to trade options at first so you don’t get impulsive and run serious losses.