It Can Be Good To Have Options
From the Chicago Mercantile Exchange:
What is a Call Option?
- A call option is the right to buy the underlying futures contract at a certain price.
- However, when prices move down you are not obligated to buy the future at the strike price, which is now higher than the futures price because that would create an immediate loss.
- Call buyers have protection in that their risk is limited to the premium they must pay for the call option. They can lock in the strike price and profit (should the underlying rise far enough) while risking only the upfront premium paid.
As the chart of the ULSD futures contract illustrates, this year has been defined so far by two periods of incredible market volatility. The blue lines are Bollinger Bands, a technical measure of price volatility.
Option hedging strategies can offer petroleum marketers a valuable way to protect their profit margins and grow their businesses.
Set yourself apart from your competition. Call POWERHOUSE and learn new ways you can use this important tool.
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Futures trading involves significant risk and is not suitable for everyone.Transactions in securities futures, commodity and index futures, and options on futures carry a high degree of risk. The amount of initial margin is small relative to the value of the futures contract or forex positions, meaning that transactions are heavily “leveraged”. A relatively small market movement will have a proportionately larger impact on the funds you have deposited or will have to deposit: this may work against you as well as for you. You may sustain a total loss of initial margin funds and any additional funds deposited with the clearing firm to maintain your position. If the market moves against your position or margin levels are increased, you may be called upon to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit.
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