Trading Options

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TradingTrading
OptionsOptions

Trading options can represent the best asTrading options can represent the best as
well as the worst of commodities trading.well as the worst of commodities trading.

Trading options can allow the investor toTrading options can allow the investor to
make great profits.make great profits.

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It can also lead to disastrous results if he orIt can also lead to disastrous results if he or
she doesn’t stay with a proven tradingshe doesn’t stay with a proven trading
plan.plan.

No matter what you know, it is always goodNo matter what you know, it is always good
to have an introduction to trading options.to have an introduction to trading options.

Definition Of Trading OptionsDefinition Of Trading Options

Options are legal agreements that give theirOptions are legal agreements that give their
buyers the right, not the obligation, tobuyers the right, not the obligation, to
purchase the underlying assets at a futurepurchase the underlying assets at a future
date.date.

Whether it is the NASDAQ 100 or cornWhether it is the NASDAQ 100 or corn
futures, trading options allows the investorfutures, trading options allows the investor
to invest in these assets with a number ofto invest in these assets with a number of
different investment strategies.different investment strategies.

Hedging and SpeculationHedging and Speculation

While other reasons also exist, the two mainWhile other reasons also exist, the two main
reasons for trading options are hedgingreasons for trading options are hedging
and speculation.and speculation.

Each has a different investment philosophyEach has a different investment philosophy
as well as techniques for trading it.as well as techniques for trading it.

Before attempting either strategy, it isBefore attempting either strategy, it is
important to understand the differencesimportant to understand the differences
between them and incorporate the onebetween them and incorporate the one
that you want to pursue into your tradingthat you want to pursue into your trading
rules.rules.

HedgingHedging

When you purchase commodities in anWhen you purchase commodities in an
attempt to offset a potential downturn, youattempt to offset a potential downturn, you
are hedge fund investing, or hedging.are hedge fund investing, or hedging.

Hedging in like an insurance policy thatHedging in like an insurance policy that
protects the investor in the event of aprotects the investor in the event of a
negative price movement for a commodity.negative price movement for a commodity.

By trading options, you are able to reduceBy trading options, you are able to reduce
the potential downside of your commoditythe potential downside of your commodity
trading while still receiving the full benefitstrading while still receiving the full benefits
of investing.of investing.

The beauty of this is that you limited yourThe beauty of this is that you limited your
risk while preserving your profit potential.risk while preserving your profit potential.

Hedging can be done by investing in stable,Hedging can be done by investing in stable,
commodities to offset any potential lossescommodities to offset any potential losses
in more speculative endeavors.in more speculative endeavors.

In addition, it can be done as a separateIn addition, it can be done as a separate
investment on an existing commodityinvestment on an existing commodity
investment; by having a second, opposinginvestment; by having a second, opposing
investment, it is possible to minimize anyinvestment, it is possible to minimize any
potential losses in the first position.potential losses in the first position.

SpeculationSpeculation

When trading options, speculation is like theWhen trading options, speculation is like the
opposite of hedging.opposite of hedging.

While hedging is a defensive investingWhile hedging is a defensive investing
strategy, speculation is purely an offensivestrategy, speculation is purely an offensive
one.one.

Speculation can be looked at as a bet by theSpeculation can be looked at as a bet by the
investor on the price movement.investor on the price movement.

The interesting part of trading commoditiesThe interesting part of trading commodities
in this manner is that not only can youin this manner is that not only can you
make money when the market goes up,make money when the market goes up,
but you can profit when it goes down orbut you can profit when it goes down or
even sideways.even sideways.

To be successful you must correctly analyzeTo be successful you must correctly analyze
the direction of the movement as well asthe direction of the movement as well as
the amount it will move.the amount it will move.

Given the fact that speculation can be veryGiven the fact that speculation can be very
risky why would you want to do it?risky why would you want to do it?

Two reasons come to mind.Two reasons come to mind.

First, you have at your disposal at greatFirst, you have at your disposal at great
deal of versatility.deal of versatility.

There are many different investment optionsThere are many different investment options
for trading options at your disposal tofor trading options at your disposal to
employ.employ.

Second is leverage; by being able to controlSecond is leverage; by being able to control
1,000 barrels in one oil futures contract,1,000 barrels in one oil futures contract,
you have a tremendous profit potential.you have a tremendous profit potential.

These reasons combine to make tradingThese reasons combine to make trading
options an excellent investmentoptions an excellent investment
opportunity.opportunity.

Help with your tradingHelp with your trading

As with any type of investing, it is importantAs with any type of investing, it is important
to follow the steps for successful trading,to follow the steps for successful trading,
including establishing a trading systemincluding establishing a trading system
and performing technical analysis.and performing technical analysis.

While understanding how to trade is critical,While understanding how to trade is critical,
putting your plan into action and followingputting your plan into action and following
it is more important.it is more important.

With a solid plan and the research to back itWith a solid plan and the research to back it
up, you substantially improve your oddsup, you substantially improve your odds
for success.for success.

Understanding optionsUnderstanding options

Trading options is an excellent way toTrading options is an excellent way to
accumulate wealth.accumulate wealth.

It is important to understand the approachIt is important to understand the approach
that you wish to take and follow thatthat you wish to take and follow that
method, whether you are hedging ormethod, whether you are hedging or
speculating.speculating.

By understanding about trading options youBy understanding about trading options you
will be able to implement your plans andwill be able to implement your plans and
confidently follow them, giving you theconfidently follow them, giving you the
opportunity to be a successful trader in theopportunity to be a successful trader in the
futures market.futures market.

Trading Options

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