Futures Options

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Commodity Option Basics

Option Facts >>>

1. When you buy an option, the most you can lose is the amount you pay for the option.
2. When you buy an option, it is a cash purchase, there is no margin requirement.
3. When you write an option, you have unlimited risk.
4. When you write an option, you do put up a margin requirement.
5. The maximum profit when you write an option is the amount of the premium received.

Option Hints >>>

1. An option loses its time value the fastest during the last 30 days before expiration.
2. More than 80% of options expire worthless.
3. The lower the underlying futures volatility, the lower the option premiums. (possibly undervalued.)
4. The higher the underlying futures volatility, the higher the option premiums (possibly overvalued.)
5. Options are less liquid than the underlying futures.

Option Strategies >>>

S T R A T E G Y	D I A G R A M	E X A M P L E
Vertical (Bull) Call Spread: Buy a call, sell a further out-of-the-money call.	sell call option buy call option current futures price	Buy one 5.00 silver call option, Sell one 5.50 silver call option
Vertical (Bear) Put Spread: Buy a put, sell a further out-of-the-money put.	current futures price buy put option sell put option	Buy one 200 corn put option, Sell one 180 corn put option
Ratio Call (Put) Spread: Buy a call (put), sell a multiple number of further out-of-the-money calls (puts).	sell call options buy call option current futures price	Buy one 550 soybean call option, sell two 600 soybean call options.
Calendar Spread: Sell a call (put), buy a call (put) in a later month.	buy a call option sell a call option present date	Sell one January 320 gold call (put) option, buy one February 320 gold call (put) option.
Synthetic Futures Spread: Buy a call (put), sell a put (call).	buy a call option current futures price sell a put option	Buy one October 6.00 sugar call option, sell one October 3.00 sugar put option.
Straddle Spread: Buy an at-the-money call (put), buy an at-the-money put (call).	buy a call option current futures price buy a put option	Buy one July 70.00 copper call option, buy one July 70.00 copper put option.
Strangle Spread: Buy an out-of-the-money call, buy an out-of-the-money put.	buy a call option current futures price buy a put option	Buy one July 80.00 copper call option, sell one July 60.00 copper put option.

FREE OPTIONS STRATEGY GUIDE

There is risk of loss in all futures and options trading. Past result are not necessarily indicative of future results. Selling, or writing, options to collect premium can result in the option writer being assigned a futures contract. The opinions expressed herein are those of TradeView Services, Inc. and do not reflect the opinion of any other individual or organization Material was gathered from sources believed to be reliable, however no guarantee to its accuracy is made.
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