Trading commodities can become very easy as long as you have some basic knowledge about the market and trading process. Commodity options provide a buyer the right to buy or sell a specific commodity at an compromised price, also known as strike price and set a time frame to hold the trade for. The buyer has to pay a premium for the trade to the broker or the seller. The buyer is does not have to exercise the contract it agreed for the strike price, they can just leave it alone and let the contract expire.
Here are few main Commodities:
Grains – corn, soybeans and wheat
Softs – cotton, lumber and sugar
Metals – gold, silver, and platinum
Energy – gas, oil, and ethanol
An investor can make real money trading commodities from bullish or bearish side of the market. Basically, trading commodity options, the buyer of the option can purchase a “put” option of any commodities like sugar or wheat at a agreed date. By buying a “put” options, the investor is betting that the market will drop in the next few weeks or months. Otherwise, if the investor thinks the commodity will rise due to global reasons, they would purchase “call” options of any specific commodity with future date. Commodity options trading is done through a brokerage firms who use the Chicago Board Options Exchange (CBOE), which is one of the largest and busiest exchanges, which was open to the world in 1973.
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