A long options trade is entered by buying an options contract and paying the premium to the options seller. If the market then moves in the desired direction, the options contract will come into profit (in the money). There are two different ways that an in the money option can be turned into realized profit. The first is to sell the contract (as with futures contracts) and keep the difference between the buying and selling prices as the profit. Selling an options contract to exit a long trade is safe because the sale is of an already owned contract.

When you buy an option, the risk is limited to the premium that you pay. Selling an option is the equivalent of acting as the insurance company. When you sell an option, all you can earn is the premium that you initially receive. The potential for losses is unlimited. The best hedge for an option is another option on the same asset as options act similarly over time.
Market expectations of commodity due to variations in demand and supply (If the market feels commodity may go up and traders are bullish about commodity, then forward prices are higher than forward parity price, whereas, if market feels that prices may go down then forward prices may be lesser) The expectations  are mainly dependent on demand supply factoINR.
A sampling of terms defined includes: active premium, aggregation, angel financing, asset allocation, backwardation, benchmark, bridge loan, capital structure arbitrage, coefficient of determination, commodity option, convertible arbitrage, deferred futures, discretionary trading, distressed debt, enumerated agricultural commodities, extrinsic value, follow-on funding, hedge ratio, interdelivery spread, long short equity, modified value-at-risk, offshore fund, piggyback registration, social entrepreneurship, systematic trading, tracking error, underlying futures contract, venture capital method, and weather premium.
According to Nasdaq's options trading tips, options are often more resilient to changes (and downturns) in market prices, can help increase income on current and future investments, can often get you better deals on a variety of equities and, perhaps most importantly, can help you capitalize on that equity rising or dropping over time without having to invest in it directly. 
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.
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.
The information contained in this article is provided for general informational purposes, and should not be construed as investment advice, tax advice, a solicitation or offer, or a recommendation to buy or sell any security. Ally Invest does not provide tax advice and does not represent in any manner that the outcomes described herein will result in any particular tax consequence. Prospective investors should confer with their personal tax advisors regarding the tax consequences based on their particular circumstances.
• Call Options – Give the buyer the right, but not the obligation, to buy the underlying at the stated strike price within a specific period of time. Conversely, the seller of a call option is obligated to deliver a long position in the underlying futures contract from the strike price should the buyer opt to exercise the option. Essentially, this means that the seller would be forced to take a short position in the market upon expiration.

According to Nasdaq's options trading tips, options are often more resilient to changes (and downturns) in market prices, can help increase income on current and future investments, can often get you better deals on a variety of equities and, perhaps most importantly, can help you capitalize on that equity rising or dropping over time without having to invest in it directly. 
Like futures markets, options markets can be traded in both directions (up or down). If a trader thinks that the market will go up, they will buy a Call option, and if they think that the market will go down, they will buy a Put option. There are also options strategies that involve buying both a Call and a Put, and in this case, the trader does not care which direction the market moves.
For example: A steel manufacturer importing coal from Australia currently and in order to reduce the volatility of changes in prices he always hedges the coal purchases on a 3 monthly forward contract where he agrees with the seller on day one of financial quarter to supply coal at defined price irrespective of price movements during quarter. So in this case, the contract is forward/future and buyer has an intention to buy the goods and no intention of making profit from price changes.
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A sampling of terms defined includes: active premium, aggregation, angel financing, asset allocation, backwardation, benchmark, bridge loan, capital structure arbitrage, coefficient of determination, commodity option, convertible arbitrage, deferred futures, discretionary trading, distressed debt, enumerated agricultural commodities, extrinsic value, follow-on funding, hedge ratio, interdelivery spread, long short equity, modified value-at-risk, offshore fund, piggyback registration, social entrepreneurship, systematic trading, tracking error, underlying futures contract, venture capital method, and weather premium.
A long options trade is entered by buying an options contract and paying the premium to the options seller. If the market then moves in the desired direction, the options contract will come into profit (in the money). There are two different ways that an in the money option can be turned into realized profit. The first is to sell the contract (as with futures contracts) and keep the difference between the buying and selling prices as the profit. Selling an options contract to exit a long trade is safe because the sale is of an already owned contract.
With options markets, as with futures markets, long and short refer to the buying and selling of one or more contracts, but unlike futures markets, they do not refer to the direction of the trade. For example, if a futures trade is entered by buying a contract, the trade is a long trade, and the trader wants the price to go up, but with options, a trade can be entered by buying a Put contract, and is still a long trade, even though the trader wants the price to go down. The following chart may help explain this further:
Commodity options provide a flexible and effective way to trade in the futures markets. Further, options on futures offer investors the ability to capitalize on leverage while still giving them the ability to manage risk. For example, through the combination of long and short call and put options in the commodity markets, an investor can design a trading strategy that fits their needs and expectations; such an arrangement is referred to as an option spread. Keep in mind that the possibilities are endless and will ultimately be determined by a trader's objectives, time horizon, market sentiment, and risk tolerance.
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.
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.
A long options trade is entered by buying an options contract and paying the premium to the options seller. If the market then moves in the desired direction, the options contract will come into profit (in the money). There are two different ways that an in the money option can be turned into realized profit. The first is to sell the contract (as with futures contracts) and keep the difference between the buying and selling prices as the profit. Selling an options contract to exit a long trade is safe because the sale is of an already owned contract.
A sampling of terms defined includes: active premium, aggregation, angel financing, asset allocation, backwardation, benchmark, bridge loan, capital structure arbitrage, coefficient of determination, commodity option, convertible arbitrage, deferred futures, discretionary trading, distressed debt, enumerated agricultural commodities, extrinsic value, follow-on funding, hedge ratio, interdelivery spread, long short equity, modified value-at-risk, offshore fund, piggyback registration, social entrepreneurship, systematic trading, tracking error, underlying futures contract, venture capital method, and weather premium.
Decide whether you think a commodity will sell for more or for less at some designated time in the future, then buy either a “put” or a “call” option. For example, you think that corn will cost more three months from now than it does now, so you will buy a “call” option on 100 bushels of corn which, in effect, locks in the cost of that commodity. Before the option expires, hopefully the price will go up, so your option will be worth more. Conversely, you will buy a “put” option if you think the price of the commodity will be less than it is today.
An equity option allows investors to fix the price for a specific period of time at which an investor can purchase or sell 100 shares of an equity for a premium (price), which is only a percentage of what one would pay to own the equity outright. This allows option investors to leverage their investment power while increasing their potential reward from an equity’s price movements.
However, for put options (right to sell), the opposite is true - with strike prices below the current share price being considered "out of the money" and vice versa. And, what's more important - any "out of the money" options (whether call or put options) are worthless at expiration (so you really want to have an "in the money" option when trading on the stock market). 
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