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Futures and Options Q & A | PFG Futures

There is no upper limit* on the opportunity for profit. The greater the price movement – provided it’s in the direction that you anticipated and provided it occurs during the life of the option – the larger the profit. Of course the risk is all or part of your total cost of the option. The total cost of an option includes the premium, plus commission and fees. As previously indicated, it is the combination of limited risk and unlimited opportunity that is a principal attraction of buying options as an investment vehicle.

*The only exception being in the purchase of “put options” because the price can not go below zero.

14. What Options can be purchased at the present time?

The list of exchange traded options has grown rapidly and now includes a broad range of agricultural commodities, precious metals, energy products, financial instruments and foreign currencies. The following table is a partial listing by category of some of the most active markets here in the United States.

Commodity Group

Option Traded

Agricultural Commodities  
These reflect basic supply / demand developments and provide a leading indicator of renewed inflation. Corn, Lumber, Cocoa, Sugar, Cotton, Cattle Soybeans, Hogs, Wheat, Coffee, Pork Bellies
Metals  
Prices often rise sharply during periods of inflation and decline during recessions. Gold, Copper, Silver, Platinum, Palladium
Interest Rates  
Even relatively small changes in interest rates can result in major changes in the market value of fixed income investments. U.S. Treasury Notes, Bills, Bonds, Eurodollars
Currencies  
Trade balances and government policies can influence the value of foreign currencies in relation to the U.S. dollar. British Pound, Swiss Franc, Japanese Yen, U.S. Dollar Index, Canadian Dollar, Mexican Peso, German Mark

15. Once I’ve bought an Option, will there be a continuing Market for that Option?

There’s generally an active market in outstanding options right up to the day of expiration. However, if an option is no longer deemed to have much, if any, chance of ever becoming worthwhile to exercise, there may not currently be a market for it. Popular markets are very liquid. Markets like Eurodollars, T-Bonds, S&P 500, Corn, Soybeans, Wheat, Crude Oil, Heating Oil and Unleaded Gasoline have literally thousands of options traded daily.

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16. Suppose an Option I’ve bought becomes Profitable very quickly. Do I have to wait until the Expiration date to sell it?

Absolutely not! When to sell such an option is entirely up to you.

17. Can I follow an Option’s current Market Value on a regular basis?

Yes, very easily. Options on futures contracts are traded on regulated exchanges that have continuos quotation systems. Daily business journals, such as the Wall St. Journal and the Investors Business Daily, plus many major metropolitan newspapers report the actively traded option premiums daily. Alternatively, you can phone your broker at who has instant computer access to current option premiums. The opportunity to know at all times what your investment is worth is another attractive feature of exchange traded options.

18. How much should I know about the underlying Commodity in order to consider investing in Options?

The reason for buying an option is because you have confidence in the probable price movement of a particular commodity. The confidence can be derived from your knowledge, or, as is the case with most investors, by dealing with a brokerage firm in whose research and analytical abilities you have confidence.

uses independent research from a number of sources. These sources track the markets both fundamentally and technically. Fundamental analysis deals with the study of supply and demand in attempting to forecast futures and options prices. No representation is being made that these fundamental analyses carry more weight than any other factor of forecasting. Technical analysis deals with the study of price as it reflects supply and demand. It too attempts to forecast futures and options prices. No representation is being made that technical analysis carry more weight than any other factor of forecasting.

Our sources are believed to be reliable, but they cannot be guaranteed. Opinions expressed are subject to change without notice. Those using this information for trading purposes are responsible for their own action and no claim is made that the recommendations will be profitable or that they will result in losses.

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