Futures and options trader
An introductory article on Futures. Describes what a forward contract means along with a practical illustration of the concept. The article discusses the procedure for settling the forward contract. The article starts by discussing the drawbacks of Forwards contracts and progress to discuss how a futures contract overcomes these drawbacks.
Examples are quoted to make the concept clear. The article explains how a trader can employ futures contract to financially profit from his directional view on a stock or an index. Practical examples are used to illustrate how the trade would evol.. This chapter discusses leverage, the central theme of futures trading in detail. The contract between futures and spot market is discussed.
The chapter also touches upon leverage calculation. This chapter gives you all the necessary information that you need to know before placing your first futures trade. If you use it right, volatility can be your best friend. Once you understand a little about market psychology, you can truly exploit volatility to create some serious profits in a relatively short period of time.
Before I get sidetracked, let me mention the fact that there are two types of volatility in commodity options trading and really all options trading for that matter: In other words, how stable or unstable have market prices been throughout history? The basic reason why it is important to understand volatility is because it will tell you what your best plan of action is, as far as what type of position to take in the markets.
In the realm of commodity options trading , you have to be prepared to face the uncertainties and volatility that the futures markets can throw at you. You have to keep in mind that options is simply a game of educated guesses. It is vital for you to make that distinction before even beginning to enter a trade.
The options markets are inherently speculative. The whole drama of it is the big question mark about what the markets may or may not do. This is where you get volatility skews and parity in puts and calls. This is why option writers pad their premiums the farther out in months the options go, because they realize that the farther the timeline extends, the more probability there is for uncontrollable events to affect market prices.
When this major drop in value happens, if you are wise, you will exit by offsetting your position instead of allowing your option to expire worthless. This is an integral part of money management, which is probably the number one requirement for a person to successfully engage in commodity options trading ; you have to conserve your trading capital and not try to be some super-hero, willing to hock your house on a lucky chance. Trading down Chart is showing some near term weakness.
However, this market remains in the confines of a longer term Uptrend with tight money management stops. Chart confirms that a strong uptrend is in place and that the market remains positive longer term. Chart indicates a counter trend rally is underway. It also indicates that the current down trend could be changing and moving into a trading range Sidelines Mode.