Futures and options trading explained
A futures option, or option on futures, is an option contract in which the underlying is a single futures contract. The buyer of a futures option contract has trading right but not the obligation to assume a particular futures position at a specified price the strike price any time and the option expires. The futures option seller must assume the opposite futures position when the buyer exercises this right. If you are unfamiliar with futures, it is recommended that you learn more about trading futures contracts before continuing with the rest of this article. Futures options usually expire near the end of the month that precedes the delivery month of the underlying futures contract i. March option expires in February and very often, it is on a Friday. This is the price at which the futures position will be opened in the trading accounts of both the buyer and the seller if the futures option is exercised. When a futures explained is exercised, a futures position is opened at the predetermined strike price in both the buyer and the seller's account. Depending on whether a call or a put is exercised, the option buyer and seller will assume either a long position or a short position. It is important to remember that the underlying of a explained options futures the futures contract, not the commodity. Hence, the option price move along with the futures price and not the commodity price. Although the futures price tracks the commodity price closely, they are not the same. For highly leveraged products like options, the impact of such tiny differences can be greatly magnified. OptionsHouse is and full fledged Futures Commission Options that provides a streamlined access to the futures markets at extremely reasonable contract rates. Buying straddles is a trading way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, futures sell off can occur even though the earnings report is good if investors had expected great results If you are very bullish on a particular stock and the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date As an alternative to writing covered calls, one can options a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date To futures higher returns in the stock market, besides doing trading homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do options is to buy stocks on margin Day futures options can be a successful, profitable explained but there are a couple of things you need to know before you use start using options for day trading Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, And Relation Between Put and Call Prices, in It states that the premium of a call option implies a explained fair price for the corresponding put option having the same strike price and expiration date, and and versa In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as "the greeks" Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using explained technique known as discounted cash flow Stocks, futures and binary options trading discussed on this website can be considered High-Risk Trading Operations and their execution can be very risky and may result in significant losses or even in a total loss of all funds on your account. You should not risk more than you afford to lose. Before deciding to trade, you need to ensure that you understand the risks involved taking into account your investment objectives and level of experience. Information on this website is provided strictly for informational and educational purposes only and is not intended as a trading recommendation service. Toggle navigation The Options Guide. Home current Binary Options new! Stock Options Stock Option Strategies Futures Options Technical Indicators. Futures positions assumed upon option exercise Buyer Assumes Seller Assumes Call Option Long Futures Position Short Futures Position Put Option Short Futures Position Long Futures Position. Ready to Start Trading Futures? Trade futures now at OptionsHouse. To buy or sell futures, you need a broker that can handle futures trades. Click here to open a futures trading account at OptionsHouse. Futures Trading Basics Futures Contract Specs Futures Exchanges Futures Margin Long Futures Position Options Futures Position Options Hedge Short Hedge Understanding Basis. Options on Futures Synthetic Long Futures Synthetic Long Futures Split Strikes Synthetic Short Futures Synthetic Short Futures Split Strikes. Crude Oil Options Heating Trading Options Gasoline Options Natural Gas Options Ethanol Options. Gold Options Platinum Options Silver Options Copper Options Aluminum Options Lead Options Zinc Options Nickel Options Tin Options. Corn Options Wheat Options Soybeans Options Oats Options Rice Options Rapeseed Options. Coffee Futures Cocoa Options Sugar Options. Live Cattle Options Feeder Cattle Options Lean Hogs Options Pork Bellies Options. Arbitrage Bearish Bullish Neutral - Bearish on Volatility Neutral - Bullish on Volatility Profit Potential: Limited Unlimited Loss Potential: Home About Us Terms of Use Disclaimer Privacy Policy Sitemap Copyright Futures positions assumed upon option exercise. The financial products offered by the company carry a high level of risk and can result trading the loss of all your funds. You should never invest money that you cannot afford to lose.
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