This section of the site looks at commodity options including education articles and technical analysis
The Commodity Options markets are becoming more and more attractive to investors, as you can see by the increasing amount of exchange traded funds based on them. Commodity Option trading can be a great way to approach the commodities market as it offers relatively lower risk than other approaches to the commodities market.
A commodity is a product that can be traded on an authorized commodity exchange and are split into five categories:
Grains – These are Oats, Corn, Rough Rice, Wheat and Soya beans
Energy – These are Crude Oil, Natural and Unleaded Gas and Heating Oil
Softs – These are grown commodities – Coffee, Lumber, Cotton, Sugar, Orange Juice and Cocoa
Metals – These are Copper, and the precious metals of Gold and Silver
Livestock – These are Lean Hogs and Live Cattle (pork and beef)
With the economy failing to stabilize, commodities options trading is becoming an important financial market because it is relatively low risk compared to the other markets. One of the common strategies used in commodity option trading is scale trading. Often referred to as a “can’t lose” strategy, but in reality, it is only as good as the trader using it.
A Commodity Option gives a buyer the right to buy or sell a certain commodity at an agreed price (also called the strike price) and a set time in the future or before.
The buyer pays a premium for this to the seller or to the broker. The buyer is not obligated to exercise this contract however if they do not choose to follow then through then they can leave it and allow the contract to expire.
By looking at the past and using technical analysis including historical charts and data the buyer can start to build a better picture and projection of the future.
Metals- Silver, Gold, Platinum
Energies- Oil, Ethanol, Gas
Grains- Wheat, Corn, Soybeans
Softs-Sugar, Cotton, Lumber
With commodity options trading, an investor has the opportunity to make money from both ends of the market, be it a bearish one or a bullish one. Basically, with a commodity option, the holder of the option is able to buy or sell commodities like wheat or soya at a specified future date. The investor will purchase a ‘Put’ option if he thinks that the price of the commodity will drop.
On the other hand, if he thinks that the price of the commodity will rise, he will purchase a ‘call’ option. The best part of the transaction is that the investor does not have to take actual delivery of the commodity to profit from the trade.
Commodity options trading are conducted through a brokerage firm by using the Chicago Board Options Exchange (CBOE), the busiest and largest exchange in the world. Prior to 1973, before the opening of the CBOE, an investor was limited in his choice of financial assets to invest in. He could only trade with instruments like Bonds or Stocks that are traded over the other exchanges like the New York Stock Exchange (NYSE).
Written by Binary Option Strategy Analyst David Ben-Asher
Investors generally buy gold as a safe haven against economic crises such as inflation and political or social unrest. Throughout history gold has always been a standard of value and away for foreign trade to flourish. Investing in Gold is usually a long term investing. An ounce of gold purchased in 2000 for $272 in now worth more than $1120. A quick look at the Dow/Gold chart shows an upward major trend in recent months.
When you get involved in commodity options as a trader, you need to make sure that before you do take the plunge, that you hold some basic knowledge, so that the journey ahead will be a smooth one and will make you mentally prepared for the high’s and low’s which are a part of the commodity options game..
Commodity options are a way for a trader to sell or purchase a commodity at a certain pre-designated price at a particular time in the future.