Trading Agricultural Futures Options

Trading Agricultural
Futures Options
By: www.Options-Trading-Education.com

Producing and buying agricultural
products can be risky. Prices can
rise rapidly if there is a threat to
supply and fall equally fast if there
is an overabundance.
By: http://www.options-trading-education.com/14271/trading-agricultural-
futures-options/

People need to eat so there is a
fairly constant demand. A constant
concern for production is the
weather.
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The threat of drought in the
American Great Plains, the
Ukraine, Brazil, or Argentina can
drive up soybean, corn, wheat, and
cattle prices.
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Excellent weather across North
America is predictive of abundant
harvests of wheat from Texas to
Alberta and a fall in wheat prices.
Trading agricultural futures
options is a common way to hedge
risk for both producers and buyers
of agricultural products.
futures-options/

A farm co-operative may buy calls
on corn futures whereas a meat
processor may buy calls on pork
bellies. They both buy options to
hedge risk.
futures-options/

Hedging Instead of Speculating
futures-options/

Producers and buyers are buying
agricultural commodity futures in
hedge business risk. They do not
shop around for what they trade.
They commonly limit themselves
to buying puts and calls in trading
agricultural commodity futures.
futures-options/

A common approach is to retain
the right to buy or sell a futures
contract without tying up money
and carrying risk through
uncertain times.
futures-options/

Producers and buyers watch long
term weather forecasts to see if a
drought in a major producing area
such as the Ukraine, Brazil, or the
American Midwest will drive
commodity prices up.
futures-options/

When a trader is fairly certain that
prices will rise or fall he can buy or
sell futures contracts with a fair
expectation of profit. By trading
agricultural futures options the
trader does not have to commit to
buy or sell until he sees the price
move.
futures-options/

A drought may resolve itself with
plentiful rain and an excellent
growing season may be ruined by
hailstorms. Options trading gives
producers and buyers the right to
buy or sell agricultural commodity
futures at advantageous prices, and
avoid being tied up in a losing
contract.
futures-options/

Speculating instead of Hedging
in Trading Agricultural Futures
Options
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Speculators have a huge advantage
over those hedging risk in options
trading. They do not need to trade
unless they fully expect a profit and
they can pick and choose which
option to trade on which futures
contract. Market volatility
commonly goes with profit for the
smart trader.
futures-options/

Traders who are certain that prices
will not rise for given agricultural
commodity future contract can
profit from selling calls and those
who are certain that prices will not
fall, can profit from selling puts.
futures-options/

In general, selling calls and puts is
more profitable than buying them
over the long term. However,
because of the risk of an occasional
catastrophic loss, selling options
contracts is typically limited to big
companies and traders with very
deep pockets.
futures-options/

Although a trader who is hedging
risk in trading agricultural futures
options may only trade once a year
a speculator can engage in several
profitable options strategies.
futures-options/

For example it is quite possible to
profit from day trading options in a
volatile market. Traders learn the
basics that drive prices and then
follow technical cues as the market
oscillates up and down.
futures-options/

By watching these factors closely,
day traders can make repeated
small and profitable trades even on
a day where prices start and end at
the same level.
futures-options/

Trading Agricultural Futures Options

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Trading Agricultural Futures Options