How to Trade in Commodity Options?
5paisa Research Team
Last Updated: 09 Jan, 2025 05:03 PM IST
![banner banner](/themes/custom/fivepaisa/images/banner-img.png)
Content
- Introduction
- Types of options
- How does options trading work?
- When is the right time to use commodity options?
- Pros of commodity option trading
- How are commodity options different?
- To sum up
Introduction
Commodity trading has been part of financial history since ancient times. Civilizations and empires were built- on successful commodity trading between different parties. Options trading in commodities is also globally prominent among major exchanges, for example, CME, NYMEX, ICE. They provide commodity options trading on a multitude of items that range from oil to precious metals.
Indian markets have completed 13 year gestation period and launched commodity options in Gold, which has led to expansion into new avenues for hedging and trading. However, commodity options trading is entirely different from Forex exchange or equities because the expiry period drastically differs. Thus, investors/buyers/speculators must understand how this type of trading works- to increase their profits.
In a nutshell, there are two primary commodity options-
a) Call option - This gives an individual the entitlement to buy the primary commodity at a predetermined fixed price or strike price on the expiration date of the contract. If the individual chooses to execute their right to buy, the contract will automatically transfer into a futures contract.
b) Put option - This gives an individual the power to sell the primary commodity at an already decided price when the contract expires. The expiration date is always the last Thursday of the month.
Naturally, there are two parties involved in the trade called buyers and sellers. Nonetheless, the parties experience the opposite results. For instance, in a model increment, the option buyer will make money and the option seller will lose money.
More About Commodity Trading Basics
- Major Commodity Exchanges in India
- Agriculture Commodities Trading
- Paper Gold
- Crude Oil Trading
- Commodity Index
- Gold Investment
- Commodity Market Timings
- What Is MCX?
- What is Commodity Trading in India?
- Types of Commodity Market
- Tips for Commodity Trading
- Tax on Commodity Trading
- The Role of Commodity Markets In India
- The Pros and Cons of Commodity Trading
- Important Things to Know Before You Start Trading in Commodity
- How to Trade in Commodity Options?
- How to Trade in Commodity Futures?
- How Commodity Market Works in India?
- How Can You Trade Commodity Online?
- Difference Between Equity and Commodity Trading
- Difference Between Commodity and Forex Trading
- What Is Commodity Market? Read More
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please Click here.