• 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.

If you are buying an option that is already "in the money" (meaning the option will immediately be in profit), its premium will have an extra cost because you can sell it immediately for a profit. On the other hand, if you have an option that is "at the money," the option is equal to the current stock price. And, as you may have guessed, an option that is "out of the money" is one that won't have additional value because it is currently not in profit.


Purchasing a call option is essentially betting that the price of the share of security (like a stock or index) will go up over the course of a predetermined amount of time. For instance, if you buy a call option for Alphabet (GOOG) at, say, $1,500 and are feeling bullish about the stock, you are predicting that the share price for Alphabet will increase. 

Similarly, if you believe the company’s share price is going to dip to $80, you’d buy a put option (giving you the right to sell shares) with a strike price above $80 (ideally a strike price no lower than $80 plus the cost of the option, so that the option remains profitable at $80). If the stock drops below the strike price, your option is in the money.

Many day traders who trade futures, also trade options, either on the same markets or on different markets. Options are similar to futures, in that they are often based upon the same underlying instruments, and have similar contract specifications, but options are traded quite differently. Options are available on futures markets, on stock indexes, and on individual stocks, and can be traded on their own using various strategies, or they can be combined with futures contracts or stocks and used as a form of trade insurance.
Just as there are several ways to skin a cat, there are an unlimited number of option trading strategies available in the futures markets. The method that you choose should be based on your personality, risk capital and risk aversion. Plainly, if you don't have an aggressive personality and a high tolerance for pain, you probably shouldn't be employing a futures and options trading strategy that involves elevated risks. Doing so will often results in panic liquidation of trades at inopportune times as well as other unsound emotional decisions.
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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.
Purchasing a call option is essentially betting that the price of the share of security (like a stock or index) will go up over the course of a predetermined amount of time. For instance, if you buy a call option for Alphabet (GOOG) at, say, $1,500 and are feeling bullish about the stock, you are predicting that the share price for Alphabet will increase. 
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.
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.

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 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.
For strangles (long in this example), an investor will buy an "out of the money" call and an "out of the money" put simultaneously for the same expiry date for the same underlying asset. Investors who use this strategy are assuming the underlying asset (like a stock) will have a dramatic price movement but don't know in which direction. What makes a long strangle a somewhat safe trade is that the investor only needs the stock to move greater than the total premium paid, but it doesn't matter in which direction. 
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Options markets trade options contracts, with the smallest trading unit being one contract. Options contracts specify the trading parameters of the market, such as the type of option, the expiration or exercise date, the tick size, and the tick value. For example, the contract specifications for the ZG (Gold 100 Troy Ounce) options market are as follows:

Arbitrage arguments:  When the commodity has plentiful supply then the prices can be very well dictated or influenced by Arbitrage arguments. Arbitrage is basically buying in one market and simultaneously selling in another, profiting from a temporary difference. This is considered riskless profit for the investor/trader. For example, if the price of gold in delhi is INR 30,000 per 10 grams and in Mumbai gold price is INR 35,000 then arbitrageur will purchase gold in Delhi and sell in Mumbai
The currency market, or foreign exchange market ("forex"), was created to facilitate the exchange of currency that becomes necessary as the result of foreign trade. That is, when an entity in one country sells something to an entity in another country, the seller earns that foreign currency. When China sells t-shirts to Walmart, for example, China earns US dollars. When Toyota wants to build a factory in the US, it needs dollars. It may get those from its local bank, which in turn will obtain them in the international currency market. This market exists to facilitate these types of exchanges.
Conversely, a put option is a contract that gives the investor the right to sell a certain amount of shares (again, typically 100 per contract) of a certain security or commodity at a specified price over a certain amount of time. Just like call options, a put option allows the trader the right (but not obligation) to sell a security by the contract's expiration date. 
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