commodity futures equivalent

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Commodity Futures Equivalent By www.CandlestickForums.com

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http://www.candlestickforums.com/ Commodity Futures Equivalent A commodity futures equivalent is a calculated comparison of value between futures contracts and options contracts on commodity futures. Commodity futures trading and commodity futures options trading both deal with the future price of underlying commodities. A futures contract confers an obligation on both parties. The futures buyer must by and the futures seller must sell the commodity on the contract expiration date. Likewise selling puts and selling calls on commodity futures contracts requires that the seller honor the contract if exercised. However, the buyer of an options contract in the commodity futures market has the choice of exercising the option on or before its expiration date. The concept of a commodity futures equivalent is something that is more easily understood after Commodity and Futures Training or Options Training with Stephen Bigalow. The futures equivalent of an option contract or set of contracts is obtained from the number of options and the risk factor or delta factor of the options. The delta or risk factor is how much an option contract will change in value if the underlying futures contract changes by one unit. Thus 20 option contacts with a risk factor of 0.1 will be 2 futures equivalent contracts. The commodity futures equivalent is calculated from the number of options contracts in hand and the previous day’s delta or risk factor. This calculation is a useful tool for the options trader for comparing the relative values of futures trading to options trading of the futures market on the same commodity with the same expiration date. When used in conjunction with technical analysis tools such as Candlestick charting the futures equivalent will help traders choose trading options markets on futures or futures markets on commodities themselves. Trading options on futures contracts may seem excessively complicated to some interested in developing options strategies or planning to simply trade futures. What futures and options together provide is the choice of exercising a futures contract or not. Trading futures contracts by way of options allows for trading futures that are considered more speculative and more risky with less risk. Buying an option gives the trader the choice of executing the option and thus buying or selling a futures contract. In an extremely volatile market in commodities this may be a good way to manage investment risk while maintaining the possibility of trading when the conditions are right.

TRANSCRIPT

Page 1: Commodity Futures Equivalent

Commodity Futures Equivalent

Bywww.CandlestickForums.com

Page 2: Commodity Futures Equivalent

A commodity futures equivalent is a calculated comparison of value between futures contracts and options contracts

on commodity futures.

www.CandlestickForums.com

Page 3: Commodity Futures Equivalent

Commodity futures trading and commodity futures options trading both deal with the future price of underlying

commodities.

www.CandlestickForums.com

Page 4: Commodity Futures Equivalent

A futures contract confers an obligation on both parties. The futures buyer must by and the futures seller must sell the commodity on the contract expiration

date.

www.CandlestickForums.com

Page 5: Commodity Futures Equivalent

Likewise selling puts and selling calls on commodity futures contracts requires

that the seller honor the contract if exercised.

www.CandlestickForums.com

Page 6: Commodity Futures Equivalent

However, the buyer of an options contract in the commodity futures

market has the choice of exercising the option on or before its expiration date.

www.CandlestickForums.com

Page 7: Commodity Futures Equivalent

The concept of a commodity futures equivalent is something that is more

easily understood after Commodity and Futures Training or Options Training with

Stephen Bigalow.

www.CandlestickForums.com

Page 8: Commodity Futures Equivalent

The futures equivalent of an option contract or set of contracts is obtained

from the number of options and the risk factor or delta factor of the options.

www.CandlestickForums.com

Page 9: Commodity Futures Equivalent

The delta or risk factor is how much an option contract will change in value if

the underlying futures contract changes by one unit. Thus 20 option contacts

with a risk factor of 0.1 will be 2 futures equivalent contracts.

www.CandlestickForums.com

Page 10: Commodity Futures Equivalent

The commodity futures equivalent is calculated from the number of options

contracts in hand and the previous day’s delta or risk factor.

www.CandlestickForums.com

Page 11: Commodity Futures Equivalent

This calculation is a useful tool for the options trader for comparing the relative

values of futures trading to options trading of the futures market on the

same commodity with the same expiration date.

www.CandlestickForums.com

Page 12: Commodity Futures Equivalent

When used in conjunction with technical analysis tools such as Candlestick

charting the futures equivalent will help traders choose trading options markets

on futures or futures markets on commodities themselves.

www.CandlestickForums.com

Page 13: Commodity Futures Equivalent

Trading options on futures contracts may seem excessively complicated to some

interested in developing options strategies or planning to simply trade

futures.

www.CandlestickForums.com

Page 14: Commodity Futures Equivalent

What futures and options together provide is the choice of exercising a

futures contract or not.

www.CandlestickForums.com

Page 15: Commodity Futures Equivalent

Trading futures contracts by way of options allows for trading futures that are considered more speculative and

more risky with less risk.

www.CandlestickForums.com

Page 16: Commodity Futures Equivalent

Buying an option gives the trader the choice of executing the option and thus

buying or selling a futures contract.

www.CandlestickForums.com

Page 17: Commodity Futures Equivalent

In an extremely volatile market in commodities this may be a good way to

manage investment risk while maintaining the possibility of trading

when the conditions are right.

www.CandlestickForums.com

Page 18: Commodity Futures Equivalent

The cost of options trading the futures market can be more that simply trading

commodities.

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Page 19: Commodity Futures Equivalent

The trader will pay a premium for buying puts or buying calls that he or she would

not pay when simply trading futures.

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Page 20: Commodity Futures Equivalent

This cost, of course, must be added to the cost of futures trading when

deciding if buying an option is worth what is effectively an insurance

premium.

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Page 21: Commodity Futures Equivalent

For those who avoid a devastatingly bad move in the futures market of a

commodity the insurance will be worth it.

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Page 22: Commodity Futures Equivalent

They will not have entered a bad position and they will not have paid to

buy or sell a futures contract.

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Page 23: Commodity Futures Equivalent

For those who are trading in stable markets the cost may not be worth it as a trader can always get out of a futures position by buying back an equivalent futures contract or selling a contract

equivalent to what he or she previously bought.

www.CandlestickForums.com

Page 24: Commodity Futures Equivalent

The use of the commodity futures equivalent calculation can be helpful in

deciding whether to trade futures or options on futures.

www.CandlestickForums.com