Futures Options Trading

Written by BK Shaw
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I prefer buying options when futures options trading. When you buy options, your risk is limited to the option premium and transaction costs. In other words, you can never lose a penny more than you hand over for the trade. If you trade futures contracts instead, or you write, sell or grant an option, you have unlimited risk of loss. I prefer to sleep at night.

The real benefit of futures options trading is the risk of loss being limited to what you pay in premium and transaction costs; the downside of trading with options is the time decay inherent in the vehicle. Options have an expiration date. In other words, you want to see prices move a certain amount to be profitable within a certain time frame. As the expiration date draws near, the amount prices have to move can increase substantially, because of the lack of time value.

Options are highly leveraged vehicles which can result in nice profits or losses depending on which side of the trade you found yourself. Some markets are more liquid than others, and so it is advisable to consult a broker before embarking on your most exciting new trading idea. I remember wanting to play platinum prices to go up using options, and realizing that the market is so illiquid, I might have been able to buy, but selling those options might have been more of a challenge!

Futures Options Trading Online

Options can be a complicated vehicle to trade if you have no experience. I recommend futures options trading with a broker for at least six months just to learn the ropes. And then if the experience hasn't completely frightened you off, then you might be ready to try it on your own!


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