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Commodity trading tips covering MCX by Sharetipsinfo

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Benefits of options trading
Options trading is said to be the best type of trading primarily because it seems to be absolutely risk free. For a common man investing his hard earned money into this investment option, this translates into getting a protected, flexible and risk free trading alternative availing of a process which allows one to maximize on the profits

In short, options trading offer you to the golden opportunity to get the most out of your investment without having to be concerned about plausible risks.

What is Commodity Options Trading?
Simply put commodity option trading is a relatively new avenue of risk free income generation wherein you have the option of maximizing your profits by minimizing your losses. A tool to ensure that your present income in monetary terms stays intact thus minimizing your risks, options trading can be said to act like an insurance which prevents unexpected price fluctuations from affecting the trader thereby protecting his interests.
Thus to summarize commodity options trading it can be said that it enables a trader trade a fixed amount of commodity using a pre-defined price in a specific time period it limits the loss suffered by the trader, if any, to the invested amount it helps traders to sustain their market positions by keeping them unaffected by margin callsit offers the commodity purchasers a certain amount of flexibility allowing them the freedom to trade commodities at their discretion

Terminologies associated with commodity options trading
Commodity options trading operate on certain set terminologies likeà Call Option which refers to the right of a purchaser to buy a commodity option at a pre-decided price in a specified time period.

  • Put Option refers to the sellers right wherein he can sell a commodity option at a pre-decided price in a specific time period

  • The Holder refers to the trader who purchases the commodity option

  • Premium refers to the selling price of the seller which is also the cost price of the buyer. Hence this can also be said to be the amount the purchaser pays the seller to procure the commodity option

  • Strike Price refers to the price pre-decided in the futures contract agreed upon by two parties at which the exchange of commodity option will happen sometime in the future

  • At Money refers to a condition wherein the strike price is at par with the futures price or the prevalent price of the commodity option. This results in a no loss no gain situation for both the purchaser as well as the seller

  • In Money refers to a condition whereby the futures price becomes more than strike price. Such a condition has the potentiality of making good profits immediately for the purchaser

  • Out Of Money refers to the condition wherein the strike price is higher than the future price. Herein the seller stands to make profits while the purchaser stands to make a loss

Future of Commodity Options Trade:
The future of the commodity options trade is very bright with regards to India since opening the market to options will encourage many multi-national firms like PepsiCo, Coca Cola Co to invest in the same since this will give them the leverage to hedge their exposure to price fluctuations in raw materials. This will result in an increase in liquidity thereby developing the commodity market which had shown a growth of 50% in the first 9 months of the fiscal year 2011. Even though the growth percentage is good, in terms of absolute value the turnover of the commodities market during the same period stood at Rs.82.70 lakh crore or roughly USD 1.83 trillion which is a measly 5% of the total commodities turnover shown by China.
Infact today India’s commodity market has grown mature enough to be able to handle new products such as commodity options trading especially in international commodities like gold, copper, silver and crude oils. With a potential of growing at a very rapid rate, India by opening its markets to commodity options trade has given this already growing market an additional impetus. This has given everyone a glimpse of what the future has in store for India making everyone want to own a slice of the cake even before it is cut.




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