• Put Options – Give the buyer the right, but not the obligation, to sell the underlying at the stated strike price within a specific period of time. The seller of a put option is obligated to deliver a short position from the strike price (accept a long futures position) in the case that the buyer chooses to exercise the option. Keep in mind that delivering a short futures contract simply means being long from the strike price.
Hedging a commodity can lead to a company missing out on favorable price moves since the contract is locked in at a fixed rate regardless of where the commodity's price trades afterward. Also, if the company miscalculates their needs for the commodity and over-hedges, it could lead to having to unwind the futures contract for a loss when selling it back to the market.

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If there’s a company you’ve had your eye on and you believe the stock price is going to rise, a “call” option gives you the right to purchase shares at a specified price at a later date. If your prediction pans out you get to buy the stock for less than it’s selling for on the open market. If it doesn’t, your financial losses are limited to the price of the contract.
For example, if you bought a long call option (remember, a call option is a contract that gives you the right to buy shares later on) for 100 shares of Microsoft stock at $110 per share for December 1, you would have the right to buy 100 shares of that stock at $110 per share regardless of if the stock price changed or not by December 1. For this long call option, you would be expecting the price of Microsoft to increase, thereby letting you reap the profits when you are able to buy it at a cheaper cost than its market value. However, if you decide not to exercise that right to buy the shares, you would only be losing the premium you paid for the option since you aren't obligated to buy any shares. 
As shown above, a long options trade has unlimited profit potential, and limited risk, but a short options trade has limited profit potential and unlimited risk. However, this is not a complete risk analysis, and in reality, short options trades have no more risk than individual stock trades (and actually have less risk than buy and hold stock trades).
For instance, it is possible to construct an option strategy in the futures markets that is affordable without sacrificing the odds of success...but with the convenience comes theoretically unlimited risk. This is easier than it sounds, similar to the way you would borrow money to pay for a house or a car, you can borrow money from the exchange to pay for long commodity option trades. There are an unlimited number of combinations of self-financed trades but they are typically going to involve more short options than long options, or at least as much premium collected on the sold options than that paid for the longs. In essence, the money brought in through the sale of the short options goes to pay for the futures options that are purchased. The result is a relatively close-to-the-money option with little out of pocket expense but theoretically unlimited risk beyond the strike price of the naked short options.
Options belong to the larger group of securities known as derivatives. A derivative's price is dependent on or derived from the price of something else. As an example, wine is a derivative of grapes ketchup is a derivative of tomatoes, and a stock option is a derivative of a stock. Options are derivatives of financial securities—their value depends on the price of some other asset. Examples of derivatives include calls, puts, futures, forwards, swaps, and mortgage-backed securities, among others.
For example, if you bought a long call option (remember, a call option is a contract that gives you the right to buy shares later on) for 100 shares of Microsoft stock at $110 per share for December 1, you would have the right to buy 100 shares of that stock at $110 per share regardless of if the stock price changed or not by December 1. For this long call option, you would be expecting the price of Microsoft to increase, thereby letting you reap the profits when you are able to buy it at a cheaper cost than its market value. However, if you decide not to exercise that right to buy the shares, you would only be losing the premium you paid for the option since you aren't obligated to buy any shares. 

For years, the preferred method of trading options was to use a live broker with a securities firm because you would receive all the research you would need to make a judgment. But with the advances made by online brokerage companies in being able to provide you with that information, more people are trading commodity options online than ever before and they are paying a fraction of the commissions they would otherwise pay to a live broker. Since you will have more trades than you would if you were simply buying stock, you will have more money in your account.


When buying or selling options, the investor or trader has the right to exercise that option at any point up until the expiration date - so simply buying or selling an option doesn't mean you actually have to exercise it at the buy/sell point. Because of this system, options are considered derivative securities - which means their price is derived from something else (in this case, from the value of assets like the market, securities or other underlying instruments). For this reason, options are often considered less risky than stocks (if used correctly). 
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