These days, financial markets offer a lot of assets to trade, including derivatives. Options and futures are some of those derivatives. They can have currencies, indices, stocks and commodities as their underlying assets. Still, more and more traders worldwide keep joining the disputes on which derivatives are better, futures or options.
The Commodity Trading Department of Masterforex-V Academy conducted research in order to find the answer to this question. They took crude oil, some of the most popular commodities, as the underlying asset for the experiment, which showed that trading options on oil futures is better than trading oil futures themselves. Let’s take a look at some arguments and facts supporting this standpoint.
Options Are Better During Periods Of Consolidation
You can trade options during exchange and off-exchanged times. There are two major types of options – put and call. A call option gives the holder the right to purchase a certain underlying asset at a certain price within a certain period. And vice versa, a put option is about selling an underlying asset. The mentioned price is called the strike. This is the price at which the deal is concluded on expiration.
American options can be executed at any time until expiration while European options can only be executed on expiration. It should be noted that American and European options are just tags, which have nothing to do with the location of the market or the underlying asset. The difference is conventional.
Moreover, both the options can be traded in to directions. Therefore there are 4 option trades: short call, long call, short put, long put.
You should remember that there are no special assets that are 100% more profitable or suitable for trading than others 100% of the time, Masterforex-V Academy reminds.
During free workshops arranged by Masterforex-V Academy the audience learns the key rule of successful option trading. Find a period of market consolidation in any market ( oil, gas, gold, stocks, indices, currencies) and get stable profit instead of opening risky conventional trades by means of trading options.
The thing is that the price of an option is determined by a range of factors and vectors. Even if one of them is wrong, the others may make up for the loss and eventually end up with a winning trade. This is the key difference between option traders and conventional traders.
Option traders may generate stable profits where others take major risks and lose money more often than not.
Real-Time Option Shorting Strategy
While opening a forward or futures contract is free of commission, any option trade requires paying a certain fee, which is a premium. Option premiums are determined by several factors, including the strike price, the expiration date, market instability and interest rates.
For example, we short a call option on crude oil (October series). The strike price is 120. The premium will be calculated a little bit later. Let’s assume we sold it for $300. We take profit, which is (300-120) = +$280.
Take a look at the chart. It shows entry and exit points. Moreover, the price of the underlying asset (which is crude oil) at the moment of closing the trade is higher than on opening. Still, we take profit. This gives as a huge edge over other conventional market participants. 100% of the students got winning trades in this case.
The chart below, courtesy of Masterforex-V Academy, reflects the real-time performance of the strategy for a couple of years:
Ig you are interested in option trading in general and this option strategy in particular, you are welcome to visit one of free workshops conducted by the Department of Option Trading, Masterforex-V Academy. The closest workshop is scheduled for August 30th, 16:00 GMT.
