Trading Commodity Futures Options
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Transcript of Trading Commodity Futures Options
In times of uncertainty trading
commodity futures options is often
a better bet than trading futures
directly.
The precipitous fall in crude oil
prices is a case in point.
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It is clear that eventually the
global economic picture will
improve but no one knows just
how soon.
If you are stuck in a sell contract
at $50 for crude oil and the price
goes up to $75 you will be out of
luck.
If, on the other hand you are
trading commodity futures options
in crude oil you loss limit will be the
cost of the options contract.
There is a lot of speculation
regarding oil these days.
Inside Futures asks just how low
are crude oil prices going.
Crude oil futures are trading far
below their 20 & 100 day moving
average telling you that the trend
is getting stronger to the downside
on a weekly basis as prices look to
crack $50 a barrel here in the next
several days with the next level of
support around $45.
If you’re still short this market play
by the rules and keep placing
your stop above the 10 day high
which currently stands at 58.53
And that stop will be lowered later in the week and if you are currently not short crude oil sit on the sidelines as you have missed the boat as this trade has been remarkable to the downside as deflation is a real problem worldwide as recessions in Europe are also putting pressure on crude oil prices at the current time.
Remember when you trade
commodities it’s very difficult to
pick a top or pick a bottom so you
want to trade with the trend & the
trend clearly is to the downside in
this market
So do not try to buy this market as
the bearishness is still present and
prices could still head lower as
nobody knows how low prices
can actually go.
It is apparent that the experts do
not know where the bottom of the
market will be.
Trading commodity futures options
in this case is a safer bet than
trading futures on oil contracts.
Chinese Commodity Futures Trading
China has all sorts of problems
these days.
Their spectacular economic
boom is leveling off.
The long awaited deflation of their
housing bubble is taking place.
And investors who are taking
money out of the real estate
market are rushing into the
Shanghai market in droves.
This increased buying pressure has
resulted in six months of
spectacular growth.
When there are no more new
investors the market will likely tank
adding to China’s woes.
In the meantime China is looking
for new ways to bring fresh capital
into its markets.
According to the Hellenic
Shipping News, they are arranging
to offer commodity futures to
foreign investors.
China has published draft rules to
allow foreign investors to trade in
some of the country’s
commodities futures, potentially
paving the way for an imminent
opening of a booming market as
Beijing looks to increase its sway
on global commodity pricing.
China is the top global consumer
of raw materials and has some of
the most liquid commodities
futures markets.
Although trading firms around the
world are eager to access the
country’s commodity exchanges,
state restrictions on foreign
participation and currency flows
have prevented the contracts
from gaining global prominence.
Beware! This is a non-transparent
market and it would be better to
be trading commodity futures
options in China than to be
trading futures on commodities.
Hedge funds, the guys who were
so leveraged in 2008 that they
contributed to the market crash
and start of the worst recession in
75 years are active in commodity
futures.
It may or may not be a good idea
to buy into these funds but their
actions are worth watching.
Agrimoney.com notes that hedge
funds are pulling back on
their bullish bets on grains, etc.
Hedge funds reduced their bullish
positions on grains and coffee,
and raised bets on sugar price
falls to the highest in 17 months –
but ended 2014 far more upbeat
on agricultural commodities than
they began it.
Managed money, a proxy for
speculators, reduced its net long
in Chicago-traded soft red winter
wheat futures and options in the
week to last Tuesday for the first
time in five weeks, data from the
Commodity Futures Trading
Commission regulator shows.
If you are not absolutely clear
about where these markets are
going, trading commodity futures
options is a much better bet than
trading commodities against
these guys directly.
