The market value of that home may have doubled to $800,000. But because the down payment locked in a pre-determined price, the buyer pays $400,000. Now, in an alternate scenario, say the zoning approval doesn’t come through until year four. This is one year past the expiration of this option. Now the home buyer must pay the market price because the contract has expired. In either case, the developer keeps the original $20,000 collected.

Trading in commodity futures contracts can be very risky for the inexperienced. The high degree of leverage used with commodity futures can amplify gains, but losses can be amplified as well. If a futures contract position is losing money, the broker can initiate a margin call, which is a demand for additional funds to shore up the account. Further, the broker will usually have to approve an account to trade on margins before they can enter into contracts.

What if, instead of a home, your asset was a stock or index investment? Similarly, if an investor wants insurance on his/her S&P 500 index portfolio, they can purchase put options. An investor may fear that a bear market is near and may be unwilling to lose more than 10% of their long position in the S&P 500 index. If the S&P 500 is currently trading at $2500, he/she can purchase a put option giving the right to sell the index at $2250, for example, at any point in the next two years.
Of course, many investors, especially new investors, are skittish about options. After all, no investor is required to trade this way, and the transactions can seem complicated. But once you know the pros and cons of this type of investing, it can be a powerful part of your strategy. No investors should be sitting on the sidelines simply because they don’t understand options.
Speculation is a wager on future price direction. A speculator might think the price of a stock will go up, perhaps based on fundamental analysis or technical analysis. A speculator might buy the stock or buy a call option on the stock. Speculating with a call option—instead of buying the stock outright—is attractive to some traders since options provide leverage. An out-of-the-money call option may only cost a few dollars or even cents compared to the full price of a $100 stock.

On the other hand, commodity option buyers are exposed to limited risk and unlimited profit potential, but they also face dismal odds of success on each individual speculation. For this reason, we often refer to the practice of buying options in the commodity markets as the purchase of a lottery ticket. It probably won’t pay off but if it does the potential gain is considerable. Conversely to the commodity option seller, an option buyer views the position as an asset (not a liability) until it is sold or expires. This is because any long option held in a commodity trading account has the potential to provide a return to the trader, even if that potential is small.


For example, a plastics producer could use commodity futures to lock in a price for buying natural gas by-products needed for production at a date in the future. The price of natural gas—like all petroleum products—can fluctuate considerably, and since the producer requires the natural gas by-product for production, they are at risk of cost increases in the future.
Covered calls can make you money when the stock price increases or stays pretty constant over the time of the option contract. However, you could lose money with this kind of trade if the stock price falls too much (but can actually still make money if it only falls a little bit). But by using this strategy, you are actually protecting your investment from decreases in share price while giving yourself the opportunity to make money while the stock price is flat. 
There is a concert of Coldplay happening in an auditorium in Mumbai next week. Mr X is a very big fan of Coldplay and he went to ticket counter but unfortunately, all the tickets have been sold out. He was very disappointed. Only seven days left for the concert but he is trying all possible ways including black market where prices were more than the actual cost of a ticket. Luckily his friend is the son of an influential politician of the city and his friend has given a letter from that politician to organizers recommending one ticket to Mr.X at actual price. He is happy now. So still 6 days are left for the concert. However, in the black market, tickets are available at a higher price than the actual price.
Of course, many investors, especially new investors, are skittish about options. After all, no investor is required to trade this way, and the transactions can seem complicated. But once you know the pros and cons of this type of investing, it can be a powerful part of your strategy. No investors should be sitting on the sidelines simply because they don’t understand options.
Options on futures began trading in 1983. Today, puts and calls on agricultural, metal, and financial (foreign currency, interest-rate and stock index) futures are traded by open outcry in designated pits. These options pits are usually located near those where the underlying futures trade. Many of the features that apply to stock options apply to futures options.

The Problem arises if one party fails to perform. The trader may fail to sell if the prices of steel goes very high like for example INR 40,000 in January 2017, in that case, he may not be able to sell at INR 31,000. On the other hand, if the buyer goes bankrupt or if the price of steel in January 2017 goes down to INR 20,000 there is an incentive to default. In other words, whichever way the price moves, both the buyer and seller have an incentive to default.

Options are available as either a Call or a Put, depending on whether they give the right to buy, or the right to sell. Call options give the holder the right to buy the underlying commodity, and Put options give the right to sell the underlying commodity. The buying or selling right only takes effect when the option is exercised, which can happen on the expiration date (European options), or at any time up until the expiration date (US options).
A commodity market is a market that trades in primary economic sector rather manufactured products.  Soft commodities are agriculture products such as Wheat, coffee, sugar and cocoa. Hard commodities are mined products such as gold and oil. Future contracts are the oldest way of investing in commodities. Futures are secured by physical assets. Commodity market can includes physical trading in derivatives using spot prices, forwards, futures and options on futures. Collectively all these are called Derivatives.
In the case of perishable commodity, the cost of storage is higher than expected future price of a commodity (For ex: TradeINR prefer to sell tomatoes now rather than waiting for 3 more months to get a good price as a cost of storage of tomato is more than price they yield by storing the same). So in this case, the spot prices reflect current supply and demand, not future movements. There spot prices for perishables are more volatile.
Covered calls can make you money when the stock price increases or stays pretty constant over the time of the option contract. However, you could lose money with this kind of trade if the stock price falls too much (but can actually still make money if it only falls a little bit). But by using this strategy, you are actually protecting your investment from decreases in share price while giving yourself the opportunity to make money while the stock price is flat. 
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