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.


If a company locks in the price and the price increases, the manufacturer would have a profit on the commodity hedge. The profit from the hedge would offset the increased cost of purchasing the product. Also, the company could take delivery of the product or offset the futures contract pocketing the profit from the net difference between the purchase price and the sale price of the futures contracts.
Whether the economy is hot or not, an investor can make money trading commodity options, regardless of the condition of the market. Briefly, a commodity option allows its owner to either sell or buy a commodity like corn or wheat at a future date. You will buy a so-called “put option” if you think the price of the commodity will go down and a “call option” if you think the price will rise. And never will you have to take possession of the commodity itself.
• 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.
In case of futures, a buyer of a contract is said to be “long position holder” and a seller is “Short position holder”. In the case of futures, to avoid the risk of defaulting contract involves both parties lodging a certain percentage margin of value of contract with a mutually trusted third party. Generally, in gold futures trading, margin varies between 2%-20% depending on the volatility of gold in spot market.
 In Economics, a commodity is a marketable item produced to satisfy wants or needs. The commodity is generally Fungible (Fungibility is the property of a good or commodity whose individual units are capable of being substituted in place of one another). For example, since one ounce of pure gold is equivalent to any other ounce of pure gold, gold is fungible. Other fungible goods are Crude oil, steel, iron ore, currencies, precious metals, alloy and non-alloy metals.
In case of futures, a buyer of a contract is said to be “long position holder” and a seller is “Short position holder”. In the case of futures, to avoid the risk of defaulting contract involves both parties lodging a certain percentage margin of value of contract with a mutually trusted third party. Generally, in gold futures trading, margin varies between 2%-20% depending on the volatility of gold in spot market.

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.
Whether the economy is hot or not, an investor can make money trading commodity options, regardless of the condition of the market. Briefly, a commodity option allows its owner to either sell or buy a commodity like corn or wheat at a future date. You will buy a so-called “put option” if you think the price of the commodity will go down and a “call option” if you think the price will rise. And never will you have to take possession of the commodity itself.
For example, if you believe the share price of a company currently trading for $100 is going to rise to $120 by some future date, you’d buy a call option with a strike price less than $120 (ideally a strike price no higher than $120 minus the cost of the option, so that the option remains profitable at $120). If the stock does indeed rise above the strike price, your option is in the money.

Volatility also increases the price of an option. This is because uncertainty pushes the odds of an outcome higher. If the volatility of the underlying asset increases, larger price swings increase the possibilities of substantial moves both up and down. Greater price swings will increase the chances of an event occurring. Therefore, the greater the volatility, the greater the price of the option. Options trading and volatility are intrinsically linked to each other in this way.
Combinations are trades constructed with both a call and a put. There is a special type of combination known as a “synthetic.” The point of a synthetic is to create an options position that behaves like an underlying asset, but without actually controlling the asset. Why not just buy the stock? Maybe some legal or regulatory reason restricts you from owning it. But you may be allowed to create a synthetic position using options.

Because options prices can be modeled mathematically with a model such as the Black-Scholes, many of the risks associated with options can also be modeled and understood. This particular feature of options actually makes them arguably less risky than other asset classes, or at least allows the risks associated with options to be understood and evaluated. Individual risks have been assigned Greek letter names, and are sometimes referred to simply as "the Greeks."


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In case of futures, a buyer of a contract is said to be “long position holder” and a seller is “Short position holder”. In the case of futures, to avoid the risk of defaulting contract involves both parties lodging a certain percentage margin of value of contract with a mutually trusted third party. Generally, in gold futures trading, margin varies between 2%-20% depending on the volatility of gold in spot market.
The price at which you agree to buy the underlying security via the option is called the "strike price," and the fee you pay for buying that option contract is called the "premium." When determining the strike price, you are betting that the asset (typically a stock) will go up or down in price. The price you are paying for that bet is the premium, which is a percentage of the value of that asset. 
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