Commodities Futures Trading

The commodities and futures markets deal with everything from soybeans to the S & P. You are primarily dealing with options in these markets.

What is an option? It is when two parties come to an agreement on price over a specific commodity. One agrees to the option of selling to the other at a specific price within a specific period of time. This is simply the option to buy not the obligation to buy at that price.

Ex. Person A own stock ABC. Person B believes that the stock will go up within the next 2 months. They make an offer to buy it at $34. Person A agrees and allows them to buy the option. The closer that the option gets to the $34 dollar mark the more the option is worth. If the stock goes down the value of that option goes down.

One thing to remember when buying options is that the closer you get to the option expiration date the less that option will be worth.

Buying an option that states that the price will go up is called a Call Option.

Buying an option where you believe that the price will go down is called buying a Put Option.

Using Options and Futures to protect your stock investments:

When you buy a stock one of three things can happen:

• The stock can go up and you profit
• The stock can go sideways and you lose money in fees and depreciation.
• The stock can go down and you lose money outright.

There is a way to offer a measure of protection against loss though.

Buy the stock that you believe will appreciate then buy a put option in case the price goes down. The price of a put is a mere fraction of what you would pay for the actual stock. If the stock goes down you make money on the put, while holding on to the stock in the hopes that it will recover and go back up.

Now no strategy will guarantee that you won't lose money. This is simply a strategy that many people use to "insure" their investments against the potential for larger losses.

Commodities Futures and Investment strategies will be explained further throughout this site.

* Ever dreamed of becoming a Commodities Broker? Check out our commodity broker training and job placement program here