There is no static position of profit or loss when it comes to trading with goods. This is what makes commodity trading so intriguing. Traders are spoilt for choice as far as derivatives are concerned. While seasoned traders find ample scope to amass profits through futures contracts, some find equal opportunities to derive benefits through options trading. The possibility is mostly affirmative when the trader applies the same principles used in dealing with stock options. The approach is more or less the same with some differences in the outcome. Experts that understand the commodities market well grasp the many benefits of trading of this kind.
Options as well as futures are similar in some ways. For instance, by definition futures is the means to buy or sell a commodity at a later date. A similar principle applies to options with the sole difference that the trader has the right but not the obligation to buy or sell those commodities. Both the derivatives allow for pre-determined trading for a possible profit within a fixed timeframe. However, futures presuppose an equally larger potential of risks, apart from promising a bigger profit margin. This margin is relatively smaller as far as long options are concerned. This is to say that the maximum loss that an individual can possible face is the premium paid along with the trading fees and commission. The fundamental difference between these derivatives comes from the huge difference in the size of the underlying. In addition, what makes futures riskier for an inexperienced trader is the large leverage that it allows. The chance of procuring huge profits is balanced out by the possibility of experiencing huge losses. A risk management specialist will give you better insight into the risk factors involved in both the derivatives.
Commodity options for profit shows better results even in comparison with equities. Equity investors are more often than not, surrounded by the fear of uni-directional loss when encountered. In case of options derivative, the perception of loss is bi-directional. In this sense, trading in commodities impart greater flexibility, owing to the fact that the potential swings both ways.
Binary trade works wonders, especially when the market experiences greater volatility. Strategies such as bull call spread and bear put spread ensure that strategically placed call and put favor the trader profitably. A trader must consider innumerable factors such as the extrinsic value, intrinsic value, and time decay in buying or writing an option. Writing comes with its own set of profitable potentials. For instance, a covered call allows the seller to derive additional benefits from the underlying that he or she already owns. The speculation functions with respect to the movement of the underlying price. Traders must caution themselves of ‘naked’ binaries that pose greater risks as compared to a covered call.
The commodities market is replete with multifarious assets including energy sources, gold, vegetables, and many more. An expert financial advisor should be able to guide you better about the current market trends with respect to their financial derivatives. While every derivative implies a set of pros and cons, some imply better stability in terms of profit.
Mike Moran is the author of this article on <a href="http://www.chikarafx.com">costa rica</a>. Find more information, about <a href="http://www.chikarafx.com">options for profit</a> here