Candlestick Trading Blog

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The key to understanding options futures is what they are and how the work.  By looking at the dynamics these futures contracts you will have a better understanding of the characteristics of options futures and in turn, have additional tools that you need in order to be a successful trader.

What Is An Options Futures Contract?
The best definition of an options futures contract is a form of trading commodities between buyers and sellers where an asset is sold at a mutually agreeable price and to be executed by a specific date.  They are called options futures because it concerns a transaction that will take place in the future at the discretion of the buy.  The buyer is simply purchasing the right to make the transaction; if he or she chooses not to complete the deal, it becomes null and void on the expiration date.

Options Contracts
There are two different types of options contracts; call options and put options; in options futures, a put option gives its buyer the right to sell the underlying asset while a call option gives the buyer the right to purchase the underlying asset.

For example, you decide to buy a call option on corn futures; you are going to buy 1,000 bushels on the 25th of June for a strike price of $5.50 per bushel and the current price is $6.00 per bushel.  What you now have is an agreement to buy, if you choose, the corn on the above date for the listed price.  If at any time up to the 25th the price of corn is above $5.50, you can sell your 1,000 bushels and take the profit, if you so choose.

Possible Scenarios
The date on the contract is the 25th of June; this is known as the expiration date.  At this point in the options trading, the buyer must decide by this date if he or she wants to complete the transaction as outlined in the contract or walk away from the deal.

Suppose that on the expiration date of your options futures contract, (the 25th), the option value is $6.00 per bushel.  You are able to buy the corn for $5.50 and resell it for $6.00, making a profit of $500. (1,000 bushels at a profit of $0.50 each)

Conversely, if the expiration date arrives and the price of your corn is only at $5.00 per bushel, you could simply walk away from the deal and let it expire.  Remember when commodities trading, the buyer has only paid for the right to purchase the underlying asset of the options futures; he or she does not have to do so.  If you allow this contract to expire, you will only lose the premium that you paid when you made the contract; this money will be paid to the seller as his or her profit.

There are actually other investment strategies that can be implemented by either buyers or sellers in order to improve their position.  For sellers, these techniques usually include stop loss orders because a seller can be vulnerable if prices rise drastically.  No matter what the position, options futures have a wide variety of market orders to select.

Conclusion
Options futures offer successful trading opportunities to make money with a number of different types of investments.  It is important for you to understand the nature of options futures and commodity trading before you get involved in any kind of investments.  After you have learned exactly what is involved in options futures, you can get involved, knowing that you have the tools you need to succeed.  With options futures, you have the ability to make your investments looking forward to the “future”!

The Forex trade is the best known of all day trading, but it definitely isn't the only commodity swing trading that occurs. While most people are familiar with the stock markets, many people not involved with trading are not aware of the other markets available to day traders, some which are even more widely traded than the stock market. For example, Forex trade occurs at a rate of over $2 TRILLION per day, many times higher than the volume you will find on Wall Street.

Commodities Markets for Day Trading
Many of the commodities markets are involved in day trading, including futures contracts, options, currencies and stocks. Some of the more popular markets for day trading are:

• Currency markets for Forex trade. (US dollar to British pound, euro to Swiss franc)


• Options contracts on futures.


• Futures based on stock indexes (S&P 500 Emini, NASDAQ 100)


• Futures based on commodities trading (corn, soybeans, crude oil)

• The Chicago Mercantile Exchange, best know for the S&P 500 Emini and Forex trade.


• NASDAQ, which specializes in the NASDAQ 100


• The Chicago Board of Trade


• Deutsche Boerse in Europe


• Euronext Paris in France

What Markets you will Trade
Deciding on where you will do your commodity trading is dependant on several factors such as your risk capital, your desired commodities, your trading plan, and your general approach to trading. If you're interested in the Forex trade, you will need different amounts of money, experience and time than someone who is interested in trading stock indexes. For a beginner investing, you might want to start with a market that has low margin requirements, a low tick value, and moves at a slower pace than something like the Forex trade, where the amounts can be high and the pace can be rapid.

Conclusion
No matter which type of day trading interests you, whether it is corn futures or Forex trade, it is important to understand the requirements, including the terminology, exchanges, markets and available brokers. Day trading can be very profitable and if an investor will take the time to follow the necessary steps: performing technical analysis, establishing a trading plan, charting and following the news, he or she can be successful whether trading pork bellies or entering the Forex trade.