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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Coffee Futures Trading Can Make You Rich
Feb0
Turn $200 into $100K in just 3 months with this Penny Stock Trading System. Trade Crude Oil Futures.Read the FRWC 40 page PDF Insider Report that reveals all about the present state of automated trading systems and what is their true potential. My day cannot start without a hot cup of coffee in the morning. My favorite place is the Starbucks where I love have a cup of coffee in the evening while going back to my home after office. My day without coffee would be impossible. I think, you also love to drink coffee. We all do! Coffee is the most popular drink in the world. Precisely because of this reason, coffee is the second heavily traded commodity in the world after crude oil. I mean after crude oil, coffee is the number second commodity in the world. Now, you can well imagine the importance of coffee in the global economy as well as in our lives.
Do you know about the Turtle Traders? Turtle traders used to trade coffee futures alongwith other commodities futures.Why would they trade coffee futures? As said before, coffee is an important commodity. Turtle traders would trade coffee futures because of their liquidity. I mean you can easily trade coffee futures while taking your cup of coffee. It’s not a bad idea. Coffee futures trading made turtle traders rich. You can can make money from coffee while drinking it too. The major producers of coffee in the world are Brazil, Columbia and Vietnam. You can know more about coffee, it’s different types, coffee producers and a lots of more useful information by visiting the webistes of The National Coffee Association of USA and the International Coffeee Organization.
The coffee futures market is basically used by the coffee producers and purchasers for hedging from wild price swings. In addition to hedging, the coffee futures market provides small investors to profit from fluctuations in the coffee prices. The most liquid coffee futures contracts are provided on the New York Board of Trade (NYBOT).
NYBOT is one the premier locations for the trade of agricultural commodities. Don’t know NYBOT? Watch the movie, “Trading Places” starring Eddie Murphy and Dan Aykroyd. It was shot at NYBOT. NYBOT coffee futures is one of the oldest futures contracts in the market.
Now, coffee is a highly volatile commodity full of seasonality, cyclicality and other factors that influence its demand. Geopolitical factors also play a heavy role in the coffee market. The ticker symbol for coffee futures is KC. The size of the coffee futures contract is 37,500 pounds. The expiry months for the coffee futures contracts are March, May, July, September and December.
Now when you buy coffee, you want the right flavor. Similarly, knowing the different type of coffees available for investment is important. Now, the global coffee production is made up of two types of beans:
There are two types of coffee beans that are traded in the coffee market. The first one is the Arabica Coffee. This is the most popular and the most widely grown coffee in the world. It gets grown in Brazil and Indonesia as well as other countries. But these two countries are the largest producers of this variety. More than 60% of the global production is Arabica Coffee. It is expensive than the other variety of coffee that is the Robusta. Robusta is easier to grow as compared to Arabica. It is less expensive than Arabica.
Now, you know why drinking coffee is a serious business in the world. Coffee craze is spreading all over the world rapidly with Starbucks shops getting opened in China, India as well as other countries. You too can become part of this coffee business and become rich!
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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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Corn Futures Not necessarily Solely For Farms
Jan0
Corn futures may be one of the key futures markets on the planet, because corn could be the staple grain utilised in the west, particularly in america. Billions in USD worth of corn futures can be traded every day by way of markets, helping equally to drive the value of corn, and to stabilize the marketplace.
Corn futures began trading in Chicago at about the same period that cotton commenced trading around New York, in the mid 1800s. Originally, the corn futures were for 3000 bushels but currently it is traded for 5000 bushels. Corn futures trade in the eCBOT around the clock, pit session runs at 10: 30 am est thru 2: 00 pm est close. Who wouldn’t enjoy a 3. 5 hour workday?
Corn futures at times close greater with the dollar losing ground and good harvest weather in the forecast. Wheat prices often grow with exports below expectations for the week. Corn production is up in addition to ending stocks on gradually declining livestock figures. Though the investing frenzy subsided together with corn futures trading prices at week’s end, the blight lifted the rate of corn futures per bushel previous week.
Grain quality merely becomes an problem when a considerable portion of the whole crop is affected. As an example, low check weights across a majority of the corn belt may lower normal yields, or very high levels of mycotoxins might make some corn unusable as a food, impracticable for ethanol use as well as excluded from export markets. Grain offered for sale at harvest incurs no storage and interest fees. Nevertheless, while the year progresses, storage as well as interest charges accrue and the money rates raises to cover these expenses.
Wheat is also planted strictly as a forage crop for livestock and hay, that has little to do for corn futures. Wheat basic principles are generally bearish as export demand remains sluggish. USDA has raised their global wheat production figure in the past, reinforcing worries about plentiful wheat materials globally, and corn futures.
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Pricing Futures Options
Jan0
Many traders who understand futures trading have a hard time understanding futures options. This is because the pricing of the options is sometimes different for the futures option contracts compared to the futures contracts.
For example, the 30 year t-bond futures contract has 32 ticks for each point in t-bonds. Each tick is worth $31.25. Now the options have 64 ticks in every point. Each tick in options is worth $15.625. See how this is confusing. Not every market is like this. The financials have markets like this as discussed with bonds and also the grains.
For instance wheat futures are priced at $50 per cent. Each tick is ¼ cent. So each tick in wheat futures is $12.50. In the options market there are 8 ticks in each cent. So each tick is 1/8 cent and each tick is $6.25. We purchase or sell options while looking at the underlying contract. The underlying contract might be priced differently so that is why it can get confusing.
Keep this is mind when buying or selling any options and futures. You would notice the prices are different if you check the quotes in the futures market compared to the options market.
For bonds I might see that bonds are priced at 115-31. I then look at an option and it is priced at 1-32. Now you will notice that bonds are never priced above -31 because there are 32 ticks and the next tick after 31 ticks is one point. So after 115-31 the next price is 116. In bonds options as we have seen, the price of the option can go from 1-31 to 1-32 because there are 64 ticks in every point in the bond markets.
For wheat you can see futures at 5546 which is 554 and ¾ or 554.75. Three quarters happens to be the highest price for futures ticks. You might see an option contract for wheat priced at 9-7 which is 9 and 7/8 which is 9.875.
So remember this when you are comparing futures options prices with futures prices.
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