What is Commodities Option Trading?

Commodities option trading is very similar to the stock market trading options. The primary difference between stock options and commodity options trading is the multiples of each. A one-dollar option on a stock represents $100 value on each contract for every 100 shares of stock. This makes the multiples equal 100. With commodity options however, each individual commodity option has its own specific multiple. An example is, a one-dollar option could be worth $50, $1000 or more, depending on the option itself.

Trading commodity options is becoming extremely popular, because it is so profitable. Stock options are great but commodities options are spectacular, you can learn to make a fortune, too. Commodities options provide more flexibility as well as offer the ability to trade with a much smaller margin in comparison to stock options. Commodity options can be used for speculative and income purposes, and offers less capital usage for commodities versus stocks. Commodities option trading is often used by brokers that have online trading platforms, and can be used for e-contracts, discount commissions, electronic trading platforms as well as considerably more complex options strategies to improve return.

Benefits of Commodities Option Trading

The benefits to using commodities option trading versus stock market trading are many. In commodities trading, they often use a SPAN (Standardized Portfolio Analysis) margin. The margin is based on a calculation of every position of a portfolio. This provides more advantages, for example, by using a collar strategy that has lower margins is comparable to a similar trade that uses stocks directly. What this means, is that the money spreads in expiration will be much less in the margins iof commodities versus stocks. This translates into better usage of your capital, and higher yields.

With an influx of online trading and discount commission trading, the costs of trading traditional stocks versus commodities are generally higher. Commission's costs per trade are generally higher with futures, but the overall costs for a similar trade could be lower. In addition, commodity options trading generally exposes less dollar slippage, often associated with electronically traded commodities such as gold and e-mini contracts. Commodity options generally require some sort of hedging, but regardless of going long or short, futures and e-mini contracts are probably the best ways to hedge a commodity option with a minimal capital investment. In addition, commissions trading generally give you more trade opportunities without an additional margin requirement, which will often reduce your overall margin that is required for each trade.