What are commodity options?
Mar0
Commodity options are capable of offering the options holder the right to buy and sell commodities at the specified rates within a specific time. The commodity options are offered in several over-the-counter markets and exchanges. Helping people to ensure against the price volatility is the main function of these options.
There are two main varieties of commodity options. These are called call and put options. Over-the-counter markets offer different varieties of them. They can be defined as the contracts that allow the buyers an option, the right not an obligation for buying and selling at specific rate with the specified date. The most important feature of these options is that they do not obligate either of the parties. This can be called as the most important difference between a futures contract and an options contract.
Futures contracts are known to obligate both parties to abide by the terms of the contract. The options may be written for the underlying assets including financial indexes and financial instruments. However, if the underlying assets are commodities like precious metals, grain, oil and other agricultural products, the options will be called commodity options.
The main factor that differentiates the options is the criteria whether they offer the ‘buyer of option’, the right to buy or sell the commodity at rates that are specified before their expiration date. The options that offer a right to buy are known as call options whereas the ones that offer a right to sell are known as put options.
An options contract must specify certain things including the commodity being traded, whether the options are call or put, number of units being traded, the expiration date and the strike price fundamentally. In brief, commodity options are a great help to traders as they offer an insurance against the price volatility.
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Trading Interest Rate Futures Shocking Secrets
Feb0
Win a FREE COPY of the High Velocity Market Master System ($2,997) that can trade stocks, forex, futures, options, commodities and ETFs by taking a quiz and also don’t forget to get your FREE COPIES of the Ultimate Day Trading System that can trade stocks, forex and futures and the Risk and Money Management Tool. Watch these Forex Training Psychology FREE Video Series by Todd Brown that reveal the secrets of Billionaire Traders. Take your Options Trading to the next level with the Options University Live Trading Labs. Anything that anyone does in the financial markets is based on interest rates. When interest rate increase, the cost of doing business increases and when interest rates are lowered, economic growth gets energized. The relationship between the rising and falling interest rates makes the markets in interest rate futures, Eurodollars and Treasury Bills, Notes and Bonds important for everyone including consumers, speculators, hedgers, economists, bureaucrats and politicians.
Bond market is at the center of the financial universe. US Treasury Bond Market is the most liquid and the most deep market in the world where almost all the investors and governments invest long term. However, with the emergence of the bond market in China and Dubai in this decade plus the development of the European Bond Market, the importanc of the US Bond Market might diminish a little. At the center of the US Bond Marke is the FED (Federal Reserve Bank). FED has the power to raise or lower the interest rates in the economy.
Now, as a trader and as an investor, you need to understand how the bond market, the rest of the financial market, the FED and the interest rate changes work out. This understanding can help you in your trading and investing endeavors.
FED has got two policy instruments at its disposal. The first policy instrument at its disposal is the FED Fund Rate. This is the overnight lending rate that the banks charge one another for meeting their stipulated reserve requirements. FED sets the Fund Rate. The other policy instrument is the Discount Rate at which FED lends money to insolvent banks.
Now how does the FED FUND RATE trickles down through the rest of the economy. Let’s see how it works. Suppose, FED is worried about the overheating of the economy and the rise in inflation. One of the primary jobs of the FED is to control inflation in the economy. So, the FOMC decides to increase the FED FUND RATE. This increase forces the banks and the credit card companies to increase their prime rates that they charge their best customers. Now, when bond traders sense an increase in the interest rates, they start selling their bonds in the market. This increases the market interest rates further. Auto loans and the home equity plus mortgage loans are tied with these bond benchmark rates, so they increase as well. So, you can see, how a chain reaction develops in the economy. This increase trickles down through the economy with a time lag that might be as long as from six months to more than one year.
So, if you want to profit from the changes in the interest rates, you can trade FED Fund Rate Futures that get traded on CME (Chicago Mercantile Exchange). These futures contracts are a pure bet on the FED decision making at FOMC. You can also trade LIBOR Futures. LIBOR means that London Interbank Offer Rate. This is the rate that commercial banks charge each other and is widely used all over the world as a benchmark. Another popular contract is the Eurodollars and the EURYEN deposits.
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Trading Gold Futures Can Make You Rich
Jan0
Recently gold prices breached the historical barrier of ,200 per troy ounce. Then a retracement took place and gold prices have come somewhat down. Gold market has been in a secular uptrend for the last decade. Gold is still the unofficial international currency. But there are some shocking secrets about the gold market that you should know. Central Banks all over the world are concerned primarily with fighting inflation. Now speculators see rising gold prices as a sign of inflation. This makes many Central Banks in the world nervous. So when they see gold price rallies going out of hand, most of them step in and start selling gold from their huge stockpiles to make the prices fall.Get the Ultimate Swing Trading Software and learn this 10 minutes a day swing trading strategy that works for forex, stocks, futures, options and ETFs. Get this FREE Penny Stock Trading Report that tells the story of James Connelly and how he turned $1K into $1M in just 30 days with only 38 trades investing in penny stocks. Learn how you too can repeat this feat! Know this shocking Dow Futures secret that can make you rich.
This is precisely what happened when gold prices breached the historical barrier of ,200 per ounce. However, this fact that central banks tend to be sellers of gold during rallies in the gold market doesn’t mean that gold prices cannot rally for a significant period of time. What this means is that the days of straight up advances in gold prices though likely aren’t as likely as they once were. Bottom line gold is a tricky market.
Gold prices are heavily influenced by political crisis and political upheavals. In times of political crisis, gold prices tend to rally higher. South Africa is the world’s largest gold exporter. It accounts for more than 25% of the gold exports in the world market. South Africa is followed by Russia, United States, Canada, Australia and Brazil. Remember the California gold rush of 19th century. Many people went, many kept on digging and only a few found gold. Now the days of gold rushes are over. Almost all the gold mines have been discovered.
Inflation is considered to be bad for the economy. It makes prices go up. When prices go up, money loses it’s value. So many wealthy investors start converting their cash assets into gold and other assets that have a negative correlation with inflation. US Dollar and gold prices tend to move in opposite direction. Gold is popularly known as Anti Dollar. However, this negative corraltion relationship maynot hold in the short term but it definately does hold in long run.
There are many exchanges in the world where gold gets traded. The most popular is the New York Mercantile Exchange (NYMEX). The second most popular is the Chicago Board Of Trade (CBOT). GOld futures on CBOT have relatively low margin requirements. This makes trading gold futures highly attractive for retail traders. The international benchmark for gold is the London Price Fix. London Price Fix is quoted in troy ouncestwice daily known as A.M Fix and the P.M Fix and is set in US Dollar.
Mini contracts also get traded on CBOT. These are smaller versions of the regular contract with much lower margin requirements. Mini contract hold 33.2 troy ounces of gold as compared to the 100 troy ounces in the regular contract. However, the general characteristics and fundamentals of the market are the same. Gold trading combined with forex trading can be a lucrative combination!
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Martingale And Other Money Management Systems For Traders
Jan0
Over the years, traders have developed many different ways to manage their money. Most of these money management systems are based on different statistical probability theories. The idea behind a good money management system is that you should never place all your money at risk on a single trade but rather put an amount that is appropriate with the level of volatility in the market. Otherwise, you risk losing everything on a single trade. Not a good idea, huh! Get the Ultimate Swing Trading Software FREE and learn this 10 minutes a day swing trading strategy that works for stocks,forex, futures, options and ETFs. Discover a revolutionary new forex robot that uses a new technology RCTPA and made 2,270.30% in 2009 averaging about 101% ROI each month. If you can read an email, you print cash with these 1500 pips a day Strignano’s Forex Signals from heaven. One new member made ,000 in just 24 hours with these signals.
Now over the years many different money management systems have been developed by traders. These different money management systems are used to calculate the position size for each trade. Most of the trading softwares now include the money management calculators with them. You only need to understand the concept behind each money management system if you want to use them in your trading system. A good trading system or for that matter a good investing system has a solid money management system as its backbone. There are many different money management systems. Let’s discuss the pros and cons of the most common money management systems.
Another thing that you need to keep in mind is that stock trading may require a different money management style as compared to futures trading or forex trading. So you need to understand the concept behind these different money management styles as a trader.
The most basic is the Fixed Fractional Money Management System. This system assumes that you want to limit your risk to a set proportion of your trading account mostly between 2% to 10%. Within that range, you would trade a larger percentage of your money for a less riskier trade and a smaller percentage of your money for a less risky trade. This money management style or what you call system is widely used by traders. Most trade by risking not more than 2% of the trading account. The Fixed Ratio Money Management System is commonly used for trading options and futures. It has a formula that you can master if you are an options trader or a futures trader.
Another money management system is the Martingale System. It has its root in gambling and casinos. But many traders love to apply it in trading as well. Under the Martingale System, you start with a set amount of money, let’s say three thousand dollars. If your trade succeeds, you trade another three thousand dollars. But if your trade loses, you double your amount to six thousand dollars. You keep on doubling the amount, until you have a winner. You might have heard about Doubling Down in a Casino. Well, this is what it is. Under the Martingale System, you will always come out ahead as long as you have an infinite amount of money. The problem is you can run out with your money before you have a winning trade.
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Futures Options Contracts
Jan0
I want to go over a common concern with futures options trading. I only recommend and teach selling options if you are covering them by buying options. Sold options that are not covered are called “naked options”. That means that if there is a move against you, and you did not also buy options, there is potential unlimited loss.
If you did cover your sold position by buying a future option as protection, you are no longer naked. Now even if a sold option is covered some still feel nervous if an option they sold is exercised into a futures contract. The buyer of an option has the right at any time to exercise their option. Let’s assume you sold a call option to someone. They exercise the option and now they are long a futures. That means you are short the futures. Should you be concerned?
Two things to consider:
You have unlimited loss potential whether you are selling a futures option or long or short a futures contract. So the fact that someone exercises an option should not worry you more. Either way, there is unlimited loss potential. But you always want to cover the position. So either way, now that it is covered, you do not have unlimited loss potential.
The second thing is that you should be happy if the seller exercises it if there is still time value left. When they do this, they are giving up on some of the time value. So if there is $100 time value left and the buyer exercises the option, he gives up that time value when he gets the futures. So either way, don't worry if you are protected.
If you only sell uncovered or naked options because you do not want to spend the money to buy options as protection, you might want to re think your strategy. Find cheap options to cover your sold options instead of being naked.
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