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How to trade commodity options?

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10th Nov 2009 by David Becker

Commodity options on futures are traded on a few different regulated exchanges. A regulated exchange is an exchange where there is an oversight group that monitors trading activity. To trade a commodity option on future, an investor will need to open a futures account with a broker. The brokerage account will allow an investor to purchase and sell options. The capital required will need to cover initial margin on positions, as well as, variation margin on positions. Initial margin is an amount of capital that the exchange deems necessary prior to the market moving in an investors favor or against him. Variation margin is capital required to cover losses once the market moves. The margin on long options positions is equal to the premium to purchase the option. The margin for options sold is equal to the margin for that underlying future. The largest futures on options exchanges are the Chicago Mercantile Exchange and the Intercontinental Exchange.

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9th Nov 2009 In Commodities 1 Answers | 1038 Views
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