What are commodity options?

There are two types of commodity options: calls and puts. A call gives the buyer the right, but not the obligation, to buy futures contract at a specific price (the strike or exercise price) for a specific period of time. A put gives the buyer the right, but not the obligation, to sell futures contract at a specific price for a specific period of time.

The buyer of a call has the possibility of making money when the price of the futures goes up. The buyer of a put has the possibility of making money when the price of the futures goes down.

There are also many other strategies combining futures and options on futures that an investor can use to take advantage of price volatility, e.g., spreads, and straddles.

Commodity trading is not suitable for everyone. The risk of loss in trading can be substantial. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Carefully consider the inherent risks of such an investment in light of your financial condition. Past results are not necessarily indicative of future results. Please do your own research before investing in the futures market. This site contains no investment recommendations. The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness.