Commodity Options on Futures
Options on futures have become such an integral part of financial
services that it can be hard to grasp the idea that they were once
almost banished from the trading floors of U.S. commodity futures
exchanges.
Since the opening bell sounded on the Commodity Exchange,
Inc., gold options ring at 10:00 A.M. on October 4, 1982, under
a pilot program of the Commodity Futures Trading Commission (CFTC),
commodity options trading took off and never looked back. The innovative
trading and hedging strategies devised over the years by users
of
the options markets have greatly expanded the universe of risk
management choices. Options on futures have ultimately been proven
so valuable
that they accounted for nearly 20% of total volume on the New York
Mercantile Exchange during its record trading year of 2002, and
were equal to nearly a quarter of futures volume.
Options on futures
open the door to a host of versatile, economical trading strategies;
by using options alone, or in combination with
futures contracts,
strategies can be found to cover virtually any risk profile, time horizon,
or cost consideration.
Options on futures provide:
-
A limit on potential
loss to the buyer.
-
The ability to hedge cash and futures positions
against an adverse price direction without foregoing the
benefits of favorable price
movements.
-
The availability of hedging insurance at many
different levels of cost and degrees of protection.
-
A means
for businesses and investors to act aggressively or conservatively
on views about the direction and volatility
of prices for energy,
precious metals, copper, and aluminum.
Because the underlying
instrument of an options contract is a futures contract for
a specific commodity, market participants
can use options
to cover themselves
against volatile swings in futures prices, just as futures
can
be used to protect against volatile moves in the prices
of the underlying
physical commodities.
The
Exchange offers options on all major futures contracts:
light, sweet crude oil; Brent crude oil; heating oil; unleaded
gasoline;
natural
gas; coal;
gold;
silver; platinum; copper; and aluminum.
COMEX opened trading
in gold options on Monday, October 4. The Coffee, Sugar,
and Cocoa Exchange opened a sugar
options
contract,
and the
Chicago Board
of Trade launched options on Treasury bond futures,
both on the previous Friday,
October 1.
Commodity Options on Futures: High Volume Trading
By any measure, commodity options are a
success. The Futures Industry Association reported that U.S.
options
on futures
volume totaled
more than 213 million
contracts in 2002, 25% of overall futures volume
of 851 million contracts. The Exchanges slate
of options
contracts
are
a deep and valuable
financial resource providing even more avenues
of risk management choices for market
participants. The options have not only helped
make the markets even more efficient in their ability
to transfer
risk, but
have helped
keep the U.S.
financial
services industry in a position of leadership worldwide.
More Information on Commodities
Commodity Trading with Options
Edge Financial Group is registered and licensed as
an Introducing Broker with the Commodity Futures Trading Commission,
the federal regulatory agency of futures and options. We are also
a member of the National Futures Association, a self-regulatory agency
working with the Commodities Futures Trading Commission. Our frim is fully licensed.
Please call to speak with an account executive:
1.866.986.EDGE
Click On Any Scrolling Commodity For A Quote
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