How option trading work online commodity

5 advantages of commodity vs. equity options. Based on experience with new commodity traders, we’ve found about 80% of them have a history with stock options. Most of these traders, when pressed, express a vague desire to diversify as one of their chief reasons for taking the next step to commodities. However, it’s intriguing that few have a firm grasp of the real advantages that commodity options can offer — especially if they are accustomed to the constraints that stock option selling can place on an investor. Don’t misunderstand: Selling equity options can be a lucrative method in the right hands. However, if you are one of the tens of thousands of investors who sell equity options to enhance your stock portfolio performance, you may be surprised to discover the horsepower you can get by harnessing this same method in commodities. In an era when sudden and excessive volatility is common, diversification is more important than ever. But the advantages don’t end there. Selling (also known as writing) options can offer benefits to investors in both equities and commodities. However, there are substantial differences between writing stock options and writing options on futures. What it generally boils down to is leverage.

Futures options offer more leverage and, therefore, can deliver greater potential rewards (in addition to greater risk). In selling equity options, you do not have to guess short-term market direction to profit. The same remains true in futures, with a few key differences: Lower margin requirement (that is, a higher return on investment). This is a key factor that attracts many stock option traders to futures. Margins posted to hold short stock options can be 10 to 20 times the premium collected for the option. With the futures industry’s margin calculation system, however, options can be sold with out-of-pocket margin requirements for as little as one to one-and-a-half times premium collected. For instance, you might sell an option for $600 and post a margin of only $700 (total margin requirement minus premium collected). This can translate into substantially higher return on your working capital. Attractive premiums can be collected for deep out-of-the-money strikes. Unlike equities — where to collect any worthwhile premium, options must be sold one to three strike prices out of the money — futures options often can be sold at strike prices far out of the money.

At such distant levels, short-term market moves typically will not have a big impact on your option’s value therefore, time value erosion may be allowed to work less impeded by short-term volatility. Liquidity. Many equity option traders complain of poor liquidity hampering efforts to enter or exit positions. While some futures contracts have higher open interest than others, most of the major contracts, such as financials, sugar, grains, gold, natural gas and crude oil, have substantial volume and open interest, offering several thousand open contracts per strike price. Diversification. In the current state of financial markets, many investors are seeking precious diversification away from equities. By expanding into commodity options, you not only gain an investment that is not correlated to equities, option positions also can be uncorrelated to each other. In stocks, most individual stocks, and their options, will move at the mercy of the index as a whole. If Microsoft is falling, chances are your Exxon and Coca Cola holdings are falling as well. In commodities, the price of natural gas has little to do with the price of wheat or silver. This can be a major benefit in diluting risk.

Fundamental bias. When selling a stock option, the price of that stock is dependent on many factors, not the least of which are corporate earnings, comments by the CEO or board members, legal actions, regulatory decisions or broader market direction. Soybeans, however, can’t cook their books, and copper can’t be declared too big to fail. The supplydemand picture of commodities is analytically cleaner. Knowing the fundamentals of a commodity, such as crop sizes and demand cycles, can be of great value when selling commodity options. In commodities, it is most often old-fashioned supply and demand fundamentals that ultimately dictate price, not the actions of a badly behaving CEO. Knowing these fundamentals can give you an advantage in deciding what options to sell. Power Up with Multiple Option Strategies. Trading Options Online. Scottrade provides option trading tools and comprehensive online education to support your experience level and trading goals. You can trade options from any of our platforms.

Option Tools & Technology. Research your tactics with the Option Ideas tool from Recognia. Access a fully customizable option chain that offers multiple expirations in the window. Compute potential profit and loss by analyzing scenarios to explore how prices are affected by market forces. Take Action. Enhance your ability to react to changing market conditions with a variety of option strategies available at Scottrade. The following option strategies are available on all Scottrade ® trading platforms: Income strategies: sell cash-secured puts and covered calls Growth strategies: buy puts and calls Speculative strategies: sell uncovered puts. Option Trading Support. Insight When You Need It. In addition to the support we provide for all traders, we offer specific option-related help. Options can be used for a variety of purposes. Check out a comprehensive overview. ScottradeЂ™s Active Trader Group can provide one-on-one support to active traders. Talk to your Investment Consultant for more information. A new dialog has opened, containing related content followed by a close link.

Clicking the close link will return you to the main page content. By clicking this link, you understand you will be redirected to the Option Industry Council, a third-party website operated and maintained by the Option Industry Council. Scottrade and the Option Industry Council are not affiliated. The Option Industry CouncilЂ™s website contains information that may be of interest or use to the reader. Third-party websites, research and tools are from sources deemed reliable however, Scottrade does not guarantee accuracy, completeness or timeliness of the information, is not responsible for statements, offers or products issued and makes no assurances with respect to the results to be obtained from their use. No information presented constitutes a recommendation by Scottrade or its affiliates to purchase any product or instrument discussed therein or engage in any specific method. Please research any product or service carefully before purchase. A protective put method raises the breakeven on the underlying by the amount paid for by the put. If the underlying stays above the strike price you can lose the entire premium upon expiration. Call Us At 800.619.7283 Email Customer Support Log In and Trade Local Branches. Online Brokerage quick links. Online Trading quick links. Investment Products quick links. Contact Us quick links.

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Scottrade does not guarantee accuracy or completeness of the information and makes no assurances with respect to results to be obtained from their use. The Options & Futures Guide. Learn option trading and you can profit from any market condition. Understand how to trade the options market using the wide range of option strategies. Discover new trading opportunities and the various ways of diversifying your investment portfolio with commodity and financial futures. To help you along in your path towards understanding the complex world of financial derivatives, we offer a comprehensive futures and options trading education resource that includes detailed tutorials, tips and advice right here at The Options Guide . Profit graphs are visual representations of the possible outcomes of options strategies. Profit or loss are graphed on the vertical axis while the underlying stock price on expiration date is graphed on the horizontal axis. Before you begin trading options, you should know what exactly is a stock option and understand the two basic types of option contracts - puts and calls. Learn how they work and how to trade them for profits.

Read more. Binary Option Basics: Binary option trading is quickly gaining popularity since their introduction in 2008. Check out our complete guide to trading binary options. Read more. The covered call is a popular option trading method that enables a stockholder to earn additional income by selling calls against a holding of his stock. Read more. Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. Read more.

Stock Option Trading Basics: For the short to medium term investor, stock option investing provide an additional suite of investment options to let him make better use of his investment capital. Read more. When trading options, you will come across the use of certain greek alphabets such as delta or gamma when describing risks associated with various options positions. They are known as "the greeks". Read more. Option Trading Advice: Many options traders tend to overlook the effects of commission charges on their overall profit or loss. It's easy to forget about the lowly $15 commission fee when every profitable trade nets you $500 or more. Heck, it's only 3% right. Read more. Stock Options Advice: Cash dividends issued by stocks have big impact on their option prices.

This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. Read more. Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. Read more. Another way to play the futures market is via options on futures. Using options to trade futures offer additional leverage and open up more trading opportunities for the seasoned trader. Read more. Day trading options can be a successful, profitable method but there are a couple of things you need to know before you use start using options for day trading. Read more. Stock Options Tutorial: If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. Read more.

Stock Options Advice: To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. Read more. Stock Option Tutorial: Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. Read more. Follow Us on Facebook to Get Daily Strategies & Tips! Futures Basics. Bearish Strategies. Synthetic Positions. Risk Warning: Stocks, futures and binary options trading discussed on this website can be considered High-Risk Trading Operations and their execution can be very risky and may result in significant losses or even in a total loss of all funds on your account. You should not risk more than you afford to lose. Before deciding to trade, you need to ensure that you understand the risks involved taking into account your investment objectives and level of experience. Information on this website is provided strictly for informational and educational purposes only and is not intended as a trading recommendation service.

TheOptionsGuide. com shall not be liable for any errors, omissions, or delays in the content, or for any actions taken in reliance thereon. The financial products offered by the company carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose. Options Basics: What Are Options? Options are a type of derivative security. They are a derivative because the price of an option is intrinsically linked to the price of something else. Specifically, options are contracts that grant the right, but not the obligation to buy or sell an underlying asset at a set price on or before a certain date. The right to buy is called a call option and the right to sell is a put option. People somewhat familiar with derivatives may not see an obvious difference between this definition and what a future or forward contract does.

The answer is that futures or forwards confer both the right and obligation to buy or sell at some point in the future. For example, somebody short a futures contract for cattle is obliged to deliver physical cows to a buyer unless they close out their positions before expiration. An options contract does not carry the same obligation, which is precisely why it is called an “option.” Call and Put Options. A call option might be thought of as a deposit for a future purpose. For example, a land developer may want the right to purchase a vacant lot in the future, but will only want to exercise that right if certain zoning laws are put into place. The developer can buy a call option from the landowner to buy the lot at say $250,000 at any point in the next 3 years. Of course, the landowner will not grant such an option for free, the developer needs to contribute a down payment to lock in that right. With respect to options, this cost is known as the premium, and is the price of the options contract. In this example, the premium might be $6,000 that the developer pays the landowner.

Two years have passed, and now the zoning has been approved the developer exercises his option and buys the land for $250,000 – even though the market value of that plot has doubled. In an alternative scenario, the zoning approval doesn’t come through until year 4, one year past the expiration of this option. Now the developer must pay market price. In either case, the landowner keeps the $6,000. A put option, on the other hand, might be thought of as an insurance policy. Our land developer owns a large portfolio of blue chip stocks and is worried that there might be a recession within the next two years. He wants to be sure that if a bear market hits, his portfolio won’t lose more than 10% of its value. If the S&P 500 is currently trading at 2500, he can purchase a put option giving him the right to sell the index at 2250 at any point in the next two years. If in six months time the market crashes by 20%, 500 points in his portfolio, he has made 250 points by being able to sell the index at 2250 when it is trading at 2000 – a combined loss of just 10%. In fact, even if the market drops to zero, he will still only lose 10% given his put option. Again, purchasing the option will carry a cost (its premium) and if the market doesn’t drop during that period the premium is lost. These examples demonstrate a couple of very important points. First, when you buy an option, you have a right but not an obligation to do something with it. You can always let the expiration date go by, at which point the option becomes worthless.

If this happens, however, you lose 100% of your investment, which is the money you used to pay for the option premium. Second, an option is merely a contract that deals with an underlying asset. For this reason, options are derivatives. In this tutorial, the underlying asset will typically be a stock or stock index, but options are actively traded on all sorts of financial securities such as bonds, foreign currencies, commodities, and even other derivatives. Buying and Selling Calls and Puts: Four Cardinal Coordinates. Owning a call option gives you a long position in the market, and therefore the seller of a call option is a short position. Owning a put option gives you a short position in the market, and selling a put is a long position. Keeping these four straight is crucial as they relate to the four things you can do with options: buy calls sell calls buy puts and sell puts. People who buy options are called holders and those who sell options are called writers of options. Here is the important distinction between buyers and sellers: Call holders and put holders (buyers) are not obligated to buy or sell. They have the choice to exercise their rights if they choose.

This limits the risk of buyers of options, so that the most they can ever lose is the premium of their options. Call writers and put writers (sellers), however, are obligated to buy or sell. This means that a seller may be required to make good on a promise to buy or sell. It also implies that option sellers have unlimited risk , meaning that they can lose much more than the price of the options premium. Don't worry if this seems confusing – it is. For this reason we are going to look at options primarily from the point of view of the buyer. At this point, it is sufficient to understand that there are two sides of an options contract. To understand options, you'll also have to first know the terminology associated with the options market. The price at which an underlying stock can be purchased or sold is called the strike price. This is the price a stock price must go above (for calls) or go below (for puts) before a position can be exercised for a profit. All of this must occur before the expiration date. In our example above, the strike price for the S&P 500 put option was 2250. The expiration date, or expiry of an option is the exact date that the contract terminates.

An option that is traded on a national options exchange such as the Chicago Board Options Exchange (CBOE) is known as a listed option. These have fixed strike prices and expiration dates. Each listed option represents 100 shares of company stock (known as a contract). For call options, the option is said to be in-the-money if the share price is above the strike price. A put option is in-the-money when the share price is below the strike price. The amount by which an option is in-the-money is referred to as intrinsic value. An option is out-of-the-money if the price of the underlying remains below the strike price (for a call), or above the strike price (for a put). An option is at-the-money when the price of the underlying is on or very close to the strike price. As mentioned above, the total cost (the price) of an option is called the premium. This price is determined by factors including the stock price, strike price, time remaining until expiration (time value) and volatility. Because of all these factors, determining the premium of an option is complicated and largely beyond the scope of this tutorial, although we will discuss it briefly. Although employee stock options aren't available for just anyone to trade, this type of option could, in a way, be classified as a type of call option. Many companies use stock options as a way to attract and to keep talented employees, especially management. They are similar to regular stock options in that the holder has the right but not the obligation to purchase company stock.

The contract, however, exists only between the holder and the company and cannot typically be exchanged with anybody else, whereas a normal option is a contract between two parties that are completely unrelated to the company and can be traded freely. Options Basics Tutorial. Nowadays, many investors' portfolios include investments such as mutual funds, stocks and bonds. But the variety of securities you have at your disposal does not end there. Another type of security, known as options, presents a world of opportunity to sophisticated investors who understand both the practical uses and inherent risks associated with this asset class. The power of options lies in their versatility, and their ability to interact with traditional assets such as individual stocks. They enable you to adapt or adjust your position according to many market situations that may arise. For example, options can be used as an effective hedge against a declining stock market to limit downside losses. Options can be put to use for speculative purposes or to be exceedingly conservative, as you want. Using options is therefore best described as part of a larger method of investing. This functional versatility, however, does not come without its costs. Options are complex securities and can be extremely risky if used improperly.

This is why, when trading options with a broker, you'll often come across a disclaimer like the following: Options involve risks and are not suitable for everyone. Option trading can be speculative in nature and carry substantial risk of loss. Only invest with risk capital. Options belong to the larger group of securities known as derivatives. This word has come to be associated with excessive risk taking and having the ability crash economies. That perception, however, is broadly overblown. All “derivative” means is that its price is dependent on, or derived from the price of something else. Put this way, wine is a derivative of grapes ketchup is a derivative of tomatoes. Options are derivatives of financial securities – their value depends on the price of some other asset. That is all derivative means, and there are many different types of securities that fall under the name derivatives, including futures, forwards, swaps (of which there are many types), and mortgage backed securities. In the 2008 crisis, it was mortgage backed securities and a particular type of swap that caused trouble. Options were largely blameless. (See also: 10 Options Strategies To Know .) Properly knowing how options work, and how to use them appropriately can give you a real advantage in the market.

If the speculative nature of options doesn't fit your style, no problem – you can use options without speculating. Even if you decide never to use options, however, it is important to understand how companies that you are investing in use them. Whether it is to hedge the risk of foreign-exchange transactions or to give employees ownership in the form of stock options, most multi-nationals today use options in some form or another. This tutorial will introduce you to the fundamentals of options. Keep in mind that most options traders have many years of experience, so don't expect to be an expert immediately after reading this tutorial. If you aren't familiar with how the stock market works, you might want to check out the Stock Basics tutorial first. The NASDAQ Options Trading Guide. Equity options today are hailed as one of the most successful financial products to be introduced in modern times. Options have proven to be superior and prudent investment tools offering you, the investor, flexibility, diversification and control in protecting your portfolio or in generating additional investment income. We hope you'll find this to be a helpful guide for learning how to trade options. Understanding Options. Options are financial instruments that can be used effectively under almost every market condition and for almost every investment goal. Among a few of the many ways, options can help you: Protect your investments against a decline in market prices Increase your income on current or new investments Buy an equity at a lower price Benefit from an equity price’s rise or fall without owning the equity or selling it outright. Benefits of Trading Options: Orderly, Efficient and Liquid Markets.

Standardized option contracts allow for orderly, efficient and liquid option markets. Options are an extremely versatile investment tool. Because of their unique riskreward structure, options can be used in many combinations with other option contracts andor other financial instruments to seek profits or protection. An equity option allows investors to fix the price for a specific period of time at which an investor can purchase or sell 100 shares of an equity for a premium (price), which is only a percentage of what one would pay to own the equity outright. This allows option investors to leverage their investment power while increasing their potential reward from an equity’s price movements. Limited Risk for Buyer. Unlike other investments where the risks may have no boundaries, options trading offers a defined risk to buyers. An option buyer absolutely cannot lose more than the price of the option, the premium. Because the right to buy or sell the underlying security at a specific price expires on a given date, the option will expire worthless if the conditions for profitable exercise or sale of the option contract are not met by the expiration date. An uncovered option seller (sometimes referred to as the uncovered writer of an option), on the other hand, may face unlimited risk. This options trading guide provides an overview of characteristics of equity options and how these investments work in the following segments: Enter a company name or symbol below to view its options chain sheet: Edit Favorites. Enter up to 25 symbols separated by commas or spaces in the text box below. These symbols will be available during your session for use on applicable pages. Customize your NASDAQ.

com experience. Select the background color of your choice: Select a default target page for your quote search: Please confirm your selection: You have selected to change your default setting for the Quote Search. This will now be your default target page unless you change your configuration again, or you delete your cookies. Are you sure you want to change your settings? Please disable your ad blocker (or update your settings to ensure that javascript and cookies are enabled), so that we can continue to provide you with the first-rate market news and data you've come to expect from us. The Basics of Futures Options. Futures options can be a low-risk way to approach the futures markets. Many new traders start by trading futures options instead of straight futures contracts. There is less risk and volatility when buying options compared with futures contracts. Many professional traders only trade options. Before you can trade futures options, it is important to understand the basics. What are Futures Options? An option is the right, not the obligation, to buy or sell a futures contract at a designated strike price for a particular time. Buying options allow one to take a long or short position and speculate on if the price of a futures contract will go higher or lower.

There are two main types of options - calls and puts. Calls – The purchase of a call option is a long position, a bet that the underlying futures price will move higher. For example, if one expects corn futures to move higher, they might buy a corn call option. Puts – The purchase of a put option is a short position, a bet that the underlying futures price will move lower. For example, if one expects soybean futures to move lower, they might buy a soybean put option. Premium – The price the buyer pays and seller receives for an option is the premium. Options are price insurance. The lower the odds of an option moving to the strike price, the less expensive on an absolute basis and the higher the odds of an option moving to the strike price, the more expensive these derivative instruments become. Contract Months (Time) – All options have an expiration date, they only are valid for a particular time. Options are wasting assets they do not last forever. For example, a December corn call expires in late November. As assets with a limited time horizon, attention must be accorded to option positions. The longer the duration of an option, the more expensive it will be. The term portion of an option's premium is its time value. Strike Price – This is the price at which you could buy or sell the underlying futures contract.

The strike price is the insurance price. Think of it this way, the difference between a current market price and the strike price is similar to the deductible in other forms of insurance. As an example, a December $3.50 corn call allows you to buy a December futures contract at $3.50 anytime before the option expires. Most traders do not convert options to futures positions they close the option position before expiration. Example of Buying an Option: If one expects the price of gold futures to move higher over the next 3-6 months, they would likely purchase a call option. Purchase: 1 December $1400 gold call at $15 1 = number of option contracts bought (represents 1 gold futures contract of 100 ounces December = Month of option contract $1400 = strike price Gold = underlying futures contract Call = type of option $15 = premium ($1,500 is the price to buy this option or, 100 ounces of gold x $15 = $1,500) More Infomation On Options. Options are price insurance, and they are wasting assets, their values decay over time. Option premiums have two values – intrinsic value and time value. Intrinsic value is the in-the-money portion of the option. Time value is the part of the option premium that is not in the money. There are three classifications for all options: In-the-money - an option that has intrinsic value Out-of-the-money - an option with no intrinsic value At-the-money - and option with no intrinsic value where the price of the underlying asset is exactly equal to the strike price of the option.

The chief determinate of option premiums is “implied volatility”. Implied volatility is the market’s perception of the future variance of the underlying asset. Historical volatility is the actual historical variance of the underlying asset in the past. In any options trade, the buyer pays the premium, and the seller receives the premium. Buying an option is the equivalent of buying insurance that the price of an asset will appreciate. Buying a put option is the equivalent of buying insurance that the price of an asset will depreciate. Ready to start building wealth? Sign up today to learn how to save for an early retirement, tackle your debt, and grow your net worth. Buyers of options are purchasers of insurance. When you buy an option, the risk is limited to the premium that you pay.

Selling an option is the equivalent of acting as the insurance company. When you sell an option, all you can earn is the premium that you initially receive. The potential for losses is unlimited. The best hedge for an option is another option on the same asset as options act similarly over time. Best Options Trading Brokers and Platforms. NerdWallet offers financial tools and advice to help people understand their options and make the best possible decisions. The guidance we offer and info we provide are deeply researched, objective and independent. We spent over 300 hours reviewing the top online brokers before selecting the best for our readers. And to help you find the one that’s best for you, we’ve highlighted their pros, cons and current offers. Who is the best options broker today?

The answer depends on whom you ask and what they value. For some investors, the best broker for trading options is the one with the cheapest commissions. Others prioritize trading tools, platform design, research, customer service or all of the above. While most of the brokers on our best-of list below would be a good, all-encompassing choice for many investors, we’ve also highlighted the standout candidates in specific areas that matter most to options traders. Unsure what you’re looking for? See how to choose an options broker for more on what can make or break an options trading experience. Summary: Best online stock brokers for options trading. Best for low-cost. Best options trading platform. Best for research and education. Best overall for options trading. Our top picks cover all the option trader needs — access to high-quality research, analytical tools, a user-friendly platform — at reasonable prices. TD Ameritrade and Interactive Brokers earn high marks for options investors for their advanced trading platforms, deep bench of research and tools, plus their high-caliber options trading capabilities.

TD Ameritrade handily serves option traders no matter where they are on the learning curve. The broker’s thinkorswim platform offers a robust options trading experience for active investors seeking professional-grade tools to identify trading opportunities, analyze potential risks and rewards, test trade strategies and quickly place even the most complex options trades. The broker’s web-based Trade Architect platform is for investors just getting into options or those who don’t require a high-octane platform. Its stripped-down, easy-to-use interface won’t overwhelm newbies. And although Trade Architect isn’t as fully stocked with tools and data as thinkorswim, it’s no slouch, either. Intermediate investors will find advanced features like a marketoptions heat map, screening and tradefinder tools, and streaming news. Get details in our TD Ameritrade review. For cost-conscious, active options traders looking for low costs and a platform with a lot more meat on its bones, Interactive Brokers may be more your style. Interactive Brokers charges just 70 cents per contract with no base fee ($1 minimum order), plus discounts for larger volumes, if you can manage the $10,000 account minimum. Its Trader Workstation platform (with an options method lab) is considered one of the best and most sophisticated around. But watch other fees to ensure that the lower commissions pay off. Both brokers allow prospective clients to test-drive the goods without putting any real money on the line. TD Ameritrade offers a paperMoney virtual trading account to test out the thinkorswim platform. At Interactive Brokers, once customers open a real account (which has a $10,000 minimum funding requirement), they can set up a paper trading account that offers them hands-on practice using IB’s Trader Workstation platform and tools.

Best brokers for low-cost options trading. These brokers offer competitively priced options trading commissions and have eliminated or dramatically capped minimum trading fees. In early 2017 most of the mainstream online brokers slashed commissions to levels once reserved for their deep-discount peers. That doesn’t mean that they’re the best deal in town for every investor. For active options traders, eOption earns five stars from NerdWallet for its low options trade commissions. The company charges a fixed $3 base plus 15 cents per contract. Another plus: eOption is known for having some of the lowest margin rates available. Although eOption charges a $50 annual inactivity fee on accounts that have placed fewer than two trades in the past 12 months or have less than $10,000 in credit or debit balances, the minimum trade workaround isn’t onerous, even for infrequent traders. Charles Schwab’s trade commission of $4.95 base rate plus 65 cents per contract puts it within spitting distance of deep-discount peers. Schwab recently fully took over the old OptionsXpress and incorporated that broker’s options experience into its own platform, with both web-based and mobile functionality. Commissions aren’t the only costs associated with trading options.

Platform, data and other fees can quickly cancel out what you save on commissions. See our full reviews of Charles Schwab and eOption for details on what they offer. For those simply looking for a cheap way to execute options trades, Charles Schwab and eOption get the job done. Best options trading platforms. These brokers offer some of the most powerful trading platforms available for a reasonable price. Judging a broker’s trading platform by the number of features it offers is like buying a car based solely on what you read in the dealer brochure. While all investors have their must-have features, what’s more important is how the platform feels when it’s in their hands. The trading platforms at Ally Invest and TradeStation offer a wide variety of analytical tools, provide stable and speedy trade execution, and allow investors to customize the tools and design to best suit their needs. Unlike TradeStation, Ally Invest (formerly TradeKing) is technically a deep discount broker as reflected in its commissions (options traders pay a $4.95 base plus 65 cents per contract with only one base charge per spread), $0 account minimum and free access to research and data. Frequent traders (those who place 30 or more trades per quarter or who carry a balance of $100,000 or more) pay a discounted $3.95 base and 50 cents per contract. But don’t be fooled by the lower prices: Customers get a lot of platform power for free. Ally is suitable for newer options investors.

The browser-based platform resembles the offerings of its pricier competitors and comes with free options trading tools for screening and advanced charting. Navigation is easy and streamlined. Customers can create a custom dashboard with movable modules with the data and features they want to use. The setup extends to what users see across all devices, including mobile and tablet. TradeStation is best left to more experienced, tech-savvy investors who want to experience options trading using the same tools as pro traders. The broker provides all the tools needed to design, test-drive, monitor, automate and speedily execute the most complex trades via direct-market access (no pesky middleman to slow down the process). Its OptionsStation Pro platform is fully integrated into TradeStation’s regular trading platform. An added bonus is the broker’s active investor forums, where traders discuss ideas, ask questions and get help. Access to all of TradeStation’s bells and whistles used to come at a steep $99.95 monthly platform fee for those who didn’t meet account balance or trading activity minimums. But in March 2017 TradeStation eliminated the service fee, lowered its trade commissions for stocks and options and tossed in free real-time market data and free access to its market-monitoring and portfolio-level back-testing tools.

Educational tools and platform tutorials are plentiful, which is a plus: Because of the sophisticated nature of the platform, it may require some time to become familiar with all that it offers. See more in our TradeStation review. Best research and options trading education. Both offer extensive research and data for free, as well as live classes and webinars for beginning and advanced options traders. If you’re new to options trading or want to expand your trading strategies, a broker that devotes its resources to research and customer education is a must. Because Schwab and Fidelity each have offices across the country in addition to their online options education libraries, they’re able to offer in-person guidance and free seminars on how to trade options, as well as one-on-one guidance on using the tools each platform offers. Fidelity’s constantly refreshed library draws from more than 20 providers, including Recognia, Ned Davis, S&P Capital IQ and McLean Capital Management. The full suite is available to customers when they sign into the broker’s web-based platform. And you don’t have to stop digging when you’re away from your computer: Fidelity has a strong mobile app that lets customers access the company’s full suite of research through a mobile browser. Charles Schwab’s options trading capabilities and lineup of trading data and research got a big boost as the company integrated its purchase of OptionsXpress. In October Schwab re-launched its online platform under the StreetSmart name, with both web-based and mobile functionality, though for now only former OptionsXpress clients have access to the new platform. In the first quarter of 2018, Schwab will begin rolling out the new platform to all clients. While the platform name is changing, Schwab still provides a fully realized suite of offerings for options traders, including trade assessment tools, customizable screeners, access to Schwab analyst options-market commentary, live online webinars and pre-recorded seminars. Best brokers for beginner options investors.

These brokers provide ideal conditions (educational resources, user-friendly platforms, customer support and low minimums) for investors just learning the options trading ropes. TD Ameritrade — one of our top overall brokers — ranked highest in this category, too. But since there are many types of beginners with many different preferences, instead of highlighting the category champions we’ve focused on brokers that are excellent candidates in three key areas: Low minimum opening balance requirements. Ally Invest, TD Ameritrade, Merrill Edge: If you’re not yet ready to devote a lot of your capital to options trading, you don’t want to tie up much in an account to meet the minimum. Many of the brokers on our list require no money to open an account. However, industry regulations require that traders maintain a $2,000 minimum to trade options. Strong customer support. Scottrade and TD Ameritrade: On-call help is particularly handy when starting out. One way to test a broker’s level of service is to contact the company with any questions you have about its option trading offerings before you even open an account. Scottrade is known for its standout customer service and huge physical presence of 500 branches. So is TD Ameritrade, with around-the-clock phone and email support and 100 branches where clients can attend seminars and meet with investment associates. At the end of 2017, TD’s acquisition of Scottrade will be complete, increasing each broker’s ability to serve clients. User-friendly platforms.

Ally, Charles Schwab and TD Ameritrade: There’s nothing better than test-driving a broker’s platform before you commit. Check to see if the broker you’re considering offers paper trading (virtual trading on a platform that mimics the real deal) or contact customer service to see if they will set you up with a demo account. As for brokers discussed in this review, Ally Invest’s browser-based platform is intuitive and easy to customize. And both Charles Schwab and TD Ameritrade have multiple platforms customers can use to start learning the ropes, then graduate to more sophisticated tools and trades if desired. Best options trading brokers: summary. Updated June 30, 2017. Disclaimer: NerdWallet has entered into referral and advertising arrangements with certain broker-dealers under which we receive compensation (in the form of flat fees per qualifying action) when you click on links to our partner broker-dealers andor submit an application or get approved for a brokerage account. At times, we may receive incentives (such as an increase in the flat fee) depending on how many users click on links to the broker-dealer and complete a qualifying action. Futures Options Trading. Futures Options Trading 101 is available free to help both experienced and beginning futures market traders. You may also register free to receive our special advanced options trading info: 'Options on Futures'. Futures Options Trading First Steps: 100% of Futures Options lose all their 'time value'.

When Futures Options expire, they are worthless. Most of the time, Futures Markets have no trend. Cannon Trading respects your privacy, all transactions are safe and secure with High-grade Encryption (AES-256, 256-bit keys) . We do not sell your information to third parties. 1. Bullish Market Strategies. 2. Bearish Market Strategies. 3. Neutral Market Strategies. Futures Options Writing. Have you ever wondered who sells the futures options that most people buy? These people are known as the option writerssellers. Their sole objective is to collect the premium paid by the option buyer. Option writing can also be used for hedging purposes and reducing risk.

An option writer has the exact opposite to gain as the option buyer. The writer has unlimited risk and a limited profit potential, which is the premium of the option minus commissions. When writing naked futures options your risk is unlimited, without the use of stops. This is why we recommend exiting positions once a market trades through an area you perceived as strong support or resistance. So why would anyone want to write an option? Here are a few reasons: Most futures options expire worthless and out of the money. Therefore, the option writer is collecting the premium the option buyer paid. There are three ways to win as an option writer. A market can go in the direction you thought, it can trade sideways and in a channel, or it can even go slowly against you but not through your strike price. The advantage is time decay. The writer believes the futures contract will not reach a certain strike price by the expiration date of the option. This is known as naked option selling.

To hedge against a futures position. For example: someone who goes long cocoa at 850 can write a 900 strike price call option with about one month of time until option expiration. This allows you to collect the premium of the call option if cocoa settles below 900, based on option expiration. It also allows you to make a profit on the actual futures contract between 851 and 900. This method also lowers your margin on the trade and should cocoa continue lower to 800, you at least collect some premium on the option you wrote. Risk lies if cocoa continues to decline because you only collect a certain amount of premium and the futures contract has unlimited risk the lower it goes. Click play to watch video on Buying Options on Futures Contracts - A Guide to Uses and Risks. Cannon Trading Company Inc. believes in writing options on futures , but advises against doing it without the advice and expertise of a knowledgeable broker or specialist. Be strict when choosing which futures options to write and don't believe in writing options on futures as your only method. Using the same method every month on a single market is bound to burn you one month, because you end up writing options on futures when you shouldn't. Cannon Trading Co. Inc.

believes you should treat option writing just like futures trading. We believe you should stay with the major trend when writing futures options, with rare exceptions. Use market pullbacks to support or resistance as opportunities to enter with the trend, by writing futures options which best fit into your objectives. Volatility is another important factor when determining which options on futures to write, it's generally better to sell over valued futures options then under valued futures options. Remember not to get caught up with only volatility, because options on futures with high volatility could always get higher. The bottom line is, pick the general market direction to become successful over the long-term. We also believe in using stops based on futures settlements, not based on the value of the option. If a market settles above or below an area you believed it shouldn't and the trend appears to have reversed based on the charts, it's probably a good time to exit your positions. We can help you understand the risks and rewards involved, as well as how to react to certain situations, i. e. ifthen trading scenarios. We can either assist your option writing style or recommend trades and strategies we believe are appropriate, using the above guidelines. Option Buying & Spreads. Most futures options expire worthless and out of the money, therefore most people lose when buying options on futures. Cannon Trading believes there is still opportunity in buying , but you must be very patient and selective. We believe buying futures options just because a market is extremely high or low, known as "fishing for options" is a big mistake.

Refer to the guidelines on our "Trading Commandments" before purchasing any futures options. Historic volatility, technical analysis, the trend and all other significant factors should all be analyzed to increase your probability of profit. All full-service accounts will receive these studies, opinions and recommendations upon request. Cannon Trading Company's "Trading Commandments" can be used as a guideline to assist you in the process and decision making of selecting the right market and futures options to purchase. A common method we implement involves the writing and buying of futures options at the same time, known as bull call or bear put spreads. Ratio and calendar spreads are also used and are recommended at times. Please do not hesitate to call for help with any of these strategies or explanations. Here are a few examples we use often: If coffee is trading at 84, we can buy 1 coffee 100 call and write 2 135 calls with the same expiration dates and 30 days of time until expiration. This would be in anticipation of coffee trending higher, but not above 135 in 30 days. We'd be collecting the same amount of premium as we're buying, so even if coffee continued lower we'd lose nothing. Our highest profit would be attained at 135 based on options on futures expiration.

To determine risk we'd take the difference between 135 and 100, which is 35 points and divide it by two, because we sold two calls for every one purchased. You'd then add the 17.5 points to 135 and this would give you the approximate break-even point based on option expiration. Risk lies if coffee rises dramatically or settles over 152.50, based on expiration. A typical calendar spread method we use often would be to write 1 option with about 25 days left until expiration and buy 1 with 60 days left. Example: If coffee was trading at 84 and we thought prices might be heading slowly higher. We can write 1 130 coffee call with less time and buy 1 coffee 130 call with more time in the anticipation that the market will trend higher, but not above the 130 strike before the first options on futures expiration. Some additional risk here lies in the difference between the two contract months. The objective is, if coffee trades higher over the next month but not above the 130 strike price, we'd collect the premium of the option we sold by letting it expire worthless. In addition, the option we purchased may also profit if coffee rises higher, but it may lose some value due to time decay if coffee doesn't rally enough. *Note: Some futures options trade based on different futures contract months and should always be considered in your trading.

Don't hesitate to call for help with any of these strategies or explanations. Remember, the key is still going to be picking the general market direction correct. Therefore, you must analyze and study each market situation with several different trading scenarios and determine which one best suits your risk parameters. The art of trading these strategies is deciding when, where, which futures markets, and what ranges to use. If you are an inexperienced options trader use these strategies through the broker assisted program. For more information, check out our Online Trading Futures Market Glossary. The material contained in 'Futures Options Trading 101' is of opinion only and does not guarantee any profit. These are risky markets and only risk capital should be used. Past results are not necessarily indicative of future results. Consult with a Cannon Commodity Trading Executive. Services Why Cannon Trading?

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