Stocks & Commodities V. 25:2 (49): Futures For You by Dan O誰eil
INSIDE THE FUTURES WORLD
Want to learn how the futures markets really work? Dan O誰eil, a principal at online futures and forex broker XPRESSTRADE (www.xpresstrade.com), responds to
your questions about today痴 futures markets. To submit a question, post your question to our website at http://Message-Boards.Traders.com. Answers will be
posted there, and selected questions will appear in a future issue of S&C.
What are some ways that traders use commodity options?
There痴 no question that commodity options are becoming increasingly popular. Traders see them not only as a great way to speculate on market direction,
but also as important tools to manage risk, diversify portfolios, and enhance current income. But there are
definite factors to keep in mind when deciding how to incorporate them in your overall portfolio. For those with a high risk tolerance, commodity options provide a great way to speculate on the markets and an opportunity to use relatively moderate sums of money to control fairly sizable positions. For a fraction of what it would cost to buy large quantities of an actual commodity like gold, crude oil, or Treasury bonds, investors can buy calls giving them the right, but not the obligation, to buy futures contracts as a specific price (the strike price). Of course, the leverage afforded by options is a double-edged sword of sorts; the risk of loss is also greater.