- How to Trade In commodity | What is Commodity | Commodity trading In India
- Crude Oil Trading Strategy & Calls
- What to Know About Oil Futures and ETFs
However, not all hours of the trading day exhibit the same characteristics. In many cases, these periods occur regularly in the half-hours preceding or following an opening or closing bell.
As traders of all types rush to close out existing positions and enter new ones, liquidity increases. This phenomenon can create an array of strategic trading opportunities.
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Here are a few of the most popular futures products and their associated commodity trading hours all times EST :. You can view trading hours for all markets here. The commodity trading hours listed above are representative of the electronic trading day for each product. In addition to these periods, there are some nuanced times that are typically active.
Here are a few of them:.
Once the opening bell rings on the NYSE, a rush of participation can hit any number of markets. Here are a few characteristics that only the premium commodity trading hours have in common:.
How to Trade In commodity | What is Commodity | Commodity trading In India
There is one important thing to remember here. On the other hand, when you buy call options on Gold, you are not getting an option to buy Gold but to buy gold futures. Unlike in equity futures, the underlying asset in case of commodity options is the future contract and not the spot commodity. That is because, spot commodities are not regulated by SEBI and hence the logistics would be too complicated. So we are actually trading a derivative of a derivative. That is why commodity options are also called second level derivatives unlike equity options which are first level derivatives.
Commodity options are rights without the obligation. The buyer of the commodity option gets the right to buy or sell the commodity future without the obligation. The payoffs refer to the profitability of the commodity option under different price conditions. Let us a consider a Crude Oil call options of strike Rs.
The premium on the 16th May call options is Rs. How would the payoff table look like for this call option? As can be seen from the above table, the maximum loss for the buyer of the call is Rs. Above the price of Rs. However, on the downside irrespective of how low the price the price of crude oil goes, the loss for the buyer of the crude oil call options will be limited to Rs.
The above call option becomes in-the-money ITM above Rs. Between the levels of Rs. Above Rs. The above is from the point of view of the buyer of the call option.
Crude Oil Trading Strategy & Calls
What happens to the seller of the call option? His cash flows will be the exact reverse of the buyer. For the seller of the call option, the maximum profit will be Rs. Let us now consider a Crude Oil put option of strike Rs. How would the payoff table look like for this put option? As can be seen from the above table, the maximum loss for the buyer of the put option is Rs. Below the price of Rs.
However, on the upside irrespective of how high the price of crude oil goes, the loss for the buyer of the crude oil put options will be limited to Rs. The above put option becomes in-the-money ITM below Rs. Below Rs. The above is from the point of view of the buyer of the put option.
What happens to the seller of the put option?
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For the seller of the put option, the maximum profit will be Rs. Commodity options are priced on the basis of demand and supply in the market. But is there an underlying theoretical precept on which these prices are calculated.
Let us look at these aspects with the help of a live illustration of a gold commodity option and how the valuation works out. What one needs to broadly remember is that the volatility and the time to expiry impacts the calls and puts in the same direction.
What to Know About Oil Futures and ETFs
An increase in spot price and interest rates is positive for calls and negative for the puts. On the other hand, an increase in the strike price is negative for calls and positive for puts. The above table also captures the option Greeks which measure of sensitive of option prices to various factors impacting option values. The final settlement is a lot more complicated in case of commodity options since they will devolve into futures. Here is what you need to know about final settlement and devolvement, which will happen 2 days prior to the futures settlement. Here are the key steps.