Home
Finance Resources
Investment Planning
Banking
Finance
Stock Market
Futures & Options
Trading
Mutual Funds
Insurance
Taxation
Enquire
Home » Futures & Options » Options » Commodity Options

Commodity Options


Commodity options are agreements between buyers and sellers that give buyers the right (but not the obligation) to buy or sell a certain amount of commodity at a specified price on a specified future date. Any commodity, such as grain or crude oil, can be used as the underlying asset for a commodity options contract.

A buyer of the commodities option has the right to buy or sell the underlying option before the contract expires. However, the right to exercise the option of either buying or selling does not put the buyer under an obligation to exercise this option. At the same time, the seller is bound to buy or sell the underlying. To exercise this flexible option, a buyer pays a premium to the seller of the option.

Commodity options are of two types: call options and put options. In a call option, the buyer of the option has the right to buy the underlying commodity at a prescribed price on a date that is specified for the future. Meanwhile, a put option provides the right to sell the underlying commodity at a prescribed price at the prescribed future date. The price that is fixed to buy or sell on a specific date in the future is known as the strike price.

How are Commodity Options Traded?

Commodity options are traded in an organized options exchange. These exchanges are responsible for standardizing the contracts by specifying the terms that need to be incorporated in the contracts. These include the quantity, price and future date expiration of the underlying commodity. The exchanges serve as facilitators of commodity options trading and ensure that the trade is fair and transparent.

Benefits of Commodity Options

Commodity options are used widely by individual investors, hedgers, and aggressive investors. They are effective tools in hedging against risks due to crop failures and anticipated losses that occur because of uncertainties in other market segments.

Risks of Commodity Options

Commodity options may promise huge returns on a small margin. However, such high returns are not always certain. Note that small fluctuations in the price of the underlying commodity may induce broad movements in the prices and hence result in great losses.

Back



Keywords:

Commodity Options, Benefits of Commodity Options, Risks of Commodity Options

Domain Registration | Windows Hosting | Linux Hosting | Java Hosting | Virtual Dedicated Server | Dedicated Server | Reseller Web Hosting | Unlimited Windows reseller hosting | Unlimited Linux reseller hosting | Cheap Windows reseller hosting | Cheap Linux reseller hosting | Cheap Windows hosting | Best Windows hosting | Windows hosting Multiple Domains | Unlimited Windows hosting | Compare hosting plans | Cheap Linux hosting | Best Linux hosting | Linux hosting Multiple Domains | Unlimited Linux hosting | Cheap asp.net hosting | Best asp.net hosting | unlimited asp.net hosting | Cheap asp.net reseller hosting | Unlimited asp.net reseller hosting | Java Features | Cheap Java hosting | Best Java hosting | unlimited Java Hosting | Unlimited Linux reseller hosting | Java Hosting Multiple Domains| | Matargashti Full Song | Matargashti mp3 Download | Matargashti Video Download | Matargashti Song Tamasha | Prem Ratan Dhan Payo Songs Download | Prem Ratan Dhan Payo Songs mp3 Download | Prem Ratan Dhan Payo Songs Video Download | Pinga Song Download | Pinga Full Song mp3 Download | Pinga Song mp3 Download | Pinga Song Video Download | Latest Bollywood Updates | Bollywood Updates | Prem Ratan Dhan Paayo Songs Download|
© ProfitGuruOnline-2024. All Rights Reserved.