How To Trade Commodity Options
for Profitable Options Trades

Trade commodity options are highly profitable. It can be more wonderful and great than stocks options because it brings risk management to an entirely new level and gives plenty of flexibility as well. Compared to index or stock options, strategies for trade commodity options can be exchanged with lesser margin. These options can also be used for both speculative and income purposes. Moreover, the margin rules of SPAN allow usage of less capital for trade commodity options. Nowadays, the commodity option trading are made substantial for complicated options strategies with the help of brokers who use deep discount commissions, online trading platforms, electronic trading platforms, and electronic mini contracts.

Commodity options are just like with stock options when it comes to trading transaction. The only difference between these two is multiples of option premiums that each represents. Apparently, there are different advantages gained from commodity options that include low margins & high yields, lower commissions, low slippage, better hedging, no additional margin trades, call credit spread, and additional trades.

Most of the trading commodity options use the SPAN margin rules wherein the calculation is centered on all angles of a selection. This can be very advantageous to the traders. For instance, a trade that uses collar strategy will have lower margin compared to the same trade that uses indices or stocks directly. Lower margins will result to better utilization of capital as well as with higher profits.

With trade commodity options, the slippage per deal per trade is huge. However, in most cases, a trade option that involves the same currency size will result to low slippage. The slippage is even lesser with commodity options that are electronically traded like e-mini contracts and gold options.

Most of the strategies with trade commodity options need some few adjustments or hedging during the span of a trade. The general rule for hedging or adjustment is going short or long of the principal to watch over if the principal is not in favor of the trade. E-mini contracts and futures provide the best method to hedge or adjust with low capital requirement.

Trade commodity options do not have extra margin trades. With careful assessment of the current trades, possible extra trade opportunities may arise. These additional opportunities can decrease the overall margin that the trade requires.

Apart from the above-mentioned advantages of trade commodity options, the trader must be aware that trading options as well as futures involve considerable risks of loss or gain that maybe or not suitable for all traders. Here is a useful list of tips that one can use for profitable options trades:

• Follow the trends in the commodity market as well as your natural instincts. As soon as you have chosen your trading system, stick to it.
  
  
• Do not overtrade and apply techniques of money management on your trading.
  
  
• Secure a position in the market wherein your profit goal exists.
  
  
• Avoid trading markets that has low capital and with volatile contracts.
  
  
• Establish trading plans prior to market opening. The plans must include objectives, exit points, and entry points.
  
  
• Maintain discipline by using technical signals such as charts. This will eliminate impulse trading.
  
  
• Cut losses short so profits can run.
  
  
• Don't overstay a good market because there's a tendency to overstay on bad markets as well.
  
  
• Learn to trade from the short side and be patient.
  
  
• The broker and client must have rapport.