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A long options trade is entered by buying an options contract, and paying the premium to the options seller. If the market then moves in the desired direction, the options contract will come into profit (in the money). There are two different ways that an in the money option can be turned into...

A long options trade is entered by buying an options contract, and paying the premium to the options seller. If the market then moves in the desired direction, the options contract will come into profit (in the money). There are two different ways that an in the money option can be turned into...

Options based upon futures markets are priced according to their multiplier (or contract value), and options based upon stocks are priced in groups of 100 shares. For example, the ZI (Silver 5000 troy ounce) options market has a multiplier of 5000, so its premiums need to be multiplied by 5000...

When a trader buys an options contract (either a Call or a Put), they have the rights given by the contract, and for these rights, they pay an up front fee to the trader selling the options contract. This fee is called the options premium, which varies from one options market to another, and...

Options contracts specify the expiration date as part of the contract specifications. For European style options, the expiration date is the date that an in the money (in profit) options contract will be exercised. For US style options, the expiration date is the last date that an in the money...

An option is exercised if the rights given to the buyer of the options contract are used. For example, if the buyer of a Call contract decides to use their right to buy the underlying security on (European style options) or at any time up to (US style options) the expiration date, they will have...

The strike price of an options contract is the price that the underlying security will be bought or sold at if the option is exercised (i.e. if the rights given by the contract are used). It is the difference between the strike price and the price of the underlying security at the time of...

A Put is an options contract that gives the buyer the right to sell the underlying commodity at the strike price on (European style options) or at any time up to (US style options) the expiration date. An options trader can be long a Put, in which case they have bought a Put contract, and have...

A Call is an options contract that gives the buyer the right to exercise the option and buy the underlying commodity at the strike price on (European style options) or at any time up to (US style options) the expiration date. An options trader can be long a Call, in which case they have bought a...

Limited Risk or Limitless Risk Basic options trades can be either long or short, and can have two different risk to reward ratios. The risk to reward ratios for long and short options trades are as follows: Long Trade Entry type: Buy a Call or a Put Profit potential: Unlimited Risk potential...

Long and Short With options markets, as with futures markets, long and short refer to the buying and selling of one or more contracts, but unlike futures markets, they do not refer to the direction of the trade. For example, if a futures trade is entered by buying a contract, the trade is a long...

Options are available as either a Call or a Put, depending upon whether they give the right to buy, or the right to sell. Call options give the holder the right to buy the underlying commodity, and Put options give the right to sell the underlying commodity. The buying or selling right only...

Options markets trade options contracts, with the smallest trading unit being one contract. Options contracts specify the trading parameters of the market, such as the type of option, the expiration or exercise date, the tick size, and the tick value. For example, the contract specifications for...

Many day traders who trade futures, also trade options, either on the same markets or on different markets. Options are similar to futures, in that they are often based upon the same underlying instruments, and have similar contract specifications, but options are traded quite differently...

Binaries are typically bought and sold in the Over the Counter (OTC) markets between sophisticated financial institutions, hedge funds, corporate treasuries, and large trading partners. They are widely used where the underlying instrument is a commodity, currency, rate, event, or index. For...

Taking price dynamics as a separate subject, the only difference between a binary and standard option is its payout profile. A binary option pays out a fixed amount, while a standard vanilla option pays out a potentially unlimited variable amount. Both options can expire worthless "out of the...

Like a standard vanilla American or European style option, binary options are defined in terms of a strike price (payout threshold), a maturity date, and an underlying reference unit, commodity, instrument or security price (the underlying). Binaries are sold in exchange for an up front premium...

When trading out-of-the-money futures options, you should have defined trading expectations. You should expect most of your trades to be losers, but make a lot of money on a small percentage of trades. This is just the opposite of using an option selling strategy, where you expect to make money...

Time decay of options is the main reason why commodity traders lose money when they buy out-of-the-money options. Option contracts only last for a limited amount of time. Therefore, options lose value every day and that rate accelerates in the last 30 days of the option. Basically, you are...

Futures options offer some excellent trading strategies to commodity futures traders, but this option strategy has several pitfalls. Out-of-the-money options are often considered “sucker bets” by many experienced commodity traders, while most new traders flock to out-of-the-money futures options...