Commodity Futures And Options

The Basics of WEB Options, Futures, and Commodity Options

1. WEB Options

1.1 Definition

WEB options are derivative contracts that derive their value from market movements for the underlying index security or a commodity.

1.2 Rights and Obligations

WEB options provide the holder with the right, but not the obligation, to buy ("go long") or sell ("go short") a particular underlying futures contract.

1.3 Benefits

- Offer potential for high returns compared to futures contracts - Limit losses to the premium paid

2. WEB Futures

2.1 Definition

WEB futures are standardized contracts that obligate the buyer to purchase or the seller to deliver a specified quantity of a commodity at a predetermined price and date in the future.

2.2 Obligations

Both parties are legally bound to fulfill the contract, regardless of market conditions.

2.3 Benefits

- Provide a way to lock in a future price for the underlying commodity - Allow for hedging against price fluctuations

3. Commodity Options

3.1 Definition

Commodity options are contracts that give the holder the right, but not the obligation, to buy or sell an underlying commodity futures contract at a fixed price on the date of contract expiry.

3.2 Cost and Returns

- Usually less expensive than futures contracts - Offer the potential for higher returns