Enter the World of Commodities and Futures
There are a variety of motives for buying and selling commodities, and finding the right commodity trading system can make all the difference between success and failure. For example, an investor can choose to be a buyer or seller of call or put options. But which trade program is right for you? This page will help you find the answers.
Bull or Bear: Finding Your Commodity Trading System
A call option buyer, for example, is bullish. That is, he or she believes the price of the underlying futures contract will rise. If prices do rise, the call option buyer then has three courses of action available. The first is to exercise the option and acquire the underlying futures contract at the strike price. The second is to offset the long call position with a sale and realize a profit. The third, and obviously least acceptable, is to let the option expire worthless and forfeit the unrealized profit.
Reasons to Sell
The seller of the call option expects futures prices to remain relatively stable or to decline modestly. If prices remain stable, the receipt of the option premium enhances the rate of return on a covered position. If prices decline, selling the call against a long futures position enables the writer to use the premium as a cushion to provide protection to the extent of the premium received.
Reasons to Buy
The buyer of the put option believes prices for the underlying futures contract will decline. In many instances, puts will be purchased in conjunction with a long cash or long T-bond futures position for “insurance” purposes. The seller of put options on fixed-income securities believes interest rates will stay at present levels or decline. In selling the put option, the writer, of course, receives income. However, if interest rates rise, the buyer of the put option can require the writer to take delivery of the underlying instrument at a price greater than that in the new market environment. The commodity trading system you choose will go a long way in determining your futures trading system success.
Learning Commodity Trading
As you can see from the above paragraphs, commodity option trading can be a hard concept to grasp. There are many unique aspects that each take a long time to understand, let alone master. It is no wonder then that many people turn to third parties and how-to sites for help. There is much information to be learned on the internet, not all of it good. Many sites tend to be too advanced, or attempt to pull people in, just to shut the door on them with poorly researched information written by people who don’t understand any more then the person reading. Sites that truly display a true understanding of the information are few and far between, and one would be wise to stick with one once it has been found. Vision Investing is one such site that can help you to understand commodity option trading, without delving into disinformation. If you want to truly understand all there is to know about all types of trading, visit Vision Investing today.
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