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Introduction to Options

Watch this RJOF Quick Tips: Introduction to Options video presented by our Senior Market Strategist, Mike Sabo to learn what options on futures are and how to implement it in your futures trading plan. 

 

 

 

Why Trade Options on Futures?

Options are a great way to fine-tune your trading approach beyond simply “buy if it’s going up” and “sell if it’s going down.” Many traders like the defined-risk aspect of options,for example. But, it doesn’t mean options are entirely without risk. You have to get direction,time frame, and amount of move right in order to profit.

 

What are Options on Futures?

There are two types of options. Calls give the buyer the right but not the obligation to buy a futures contract at a certain price prior to option expiration. Puts give the buyer the right but not the obligation to sell the underlying futures market at a certain price prior to option expiration.

 

Buying vs. Selling Options on Futures

Most individual traders tend to buy options because they know their maximum risk (premium paid) upfront. But, selling options can give you opportunities to profit because you collect and keep the premium the buyer pays if the option expires worthless or decreases in value. However, there is potentially unlimited risk in selling options.

 

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This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.