Futures Options Trading | Commodity Option Trading–An Overview

Commodity Option Trading–An Overview

by Phil R.

Hello everyone out there…One of my main “lanes of operation” has been commodity option trading; it’s what I know, it’s what I’m used to talking about, it’s what I’ve done throughout the past 7 years. I’ll be the first to admit that the world of commodity option trading is a hairy, complicated beast–it takes years to learn what drives the options markets, and in particular, the different factors that come into play when determining an option’s premium. So much should be taken into account–volatility, price action, the general market sentiment (bullish or bearish), time, and a host of other things that would take a mathematician to explain. The cool thing about it is that once you understand the basics of trading commodity options, it becomes a “lather, rinse, repeat” process across all the different markets. Each market has its own personality, and the option premium behavior within each market also has a personality of its own. You just have to be in the markets to truly get a feel for it, and that takes time…nothing more, nothing less. I can say that I have definitely graduated from the commodity options school of hard knocks, and I know what it takes to make money in the commodity options market, and I also know what it takes to lose money as well. I’ve done quite a bit of both over the past 7 years, and although I am FAR from “guru status”, and don’t claim to be a guru about commodity option trading, at the same time I’ve learned how to boil all the principles down to something workable for pretty much anyone that has a willingess to learn some very basic commodity option trading strategies.

My intention with this site is not to turn it into some boring, dry clinic on commodity options trading, but rather to share some of my personal experiences in trading commodity options. I will include many journal entries from my personal trading notebook, in hopes that some valuable lessons can be gleaned from my successes and failures. Plus, it is somewhat cathartic to get this all out and publish it on a website. Go figure. At the end of the day, this site will be about my personal experiences in commodity option trading, and if you so desire, please join me for the ride.

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