Commodity Options Trading can be highly profitable. Options on Stocks is great but options on commodities is wonderful. Options give lot of flexibility and takes Risk management to a whole new level.Commodity Tips can be traded with much less margin compare to index/stock options. Commodity Tips options can be used for both Income and speculative purposes. SPAN margin rules allow less capital usage for the trading commodity options. E-mini contracts, electronic trading platforms, deep discount commissions and lot of brokers with online trading platforms have made "Commodity option trading" considerable for complex options strategies.
Commodity option Trading is similar to trading options on stocks. Biggest difference between stock options and Commodity options is multiples, $1 option premium on stocks represents a value of $100 as each contract is for 100 shares of stock, making the multiples as 100. It is different with commodity options, each underlying commodity has it's own multiple. E-mini S&P has multiple of 50, i.e., $1 option premium on E-mini S&P is worth $50. Crude oil has multiple of 1000 and Natural Gas has 10,000 and so on.
There are 3 National Exchanges for enabling the purchase and sale of commodities, futures and options. These are:
1. Multi-Commodity Exchange of India Ltd. (MCX)
2. National Commodities and Derivatives Exchange Ltd. (NCDEX)
3. National Multi-Commodity Exchange of India Ltd.
Under these 3 National Exchanges, there are a dozen active Bourses for trading, more than 2,000 brokers operating in 6,000 terminals and 10,000 active traders. All these are tracking the commodities prices round the clock. In the very First year of its commencement, Commodities Trading in India clocked an annual turnover of Rs.1400 Billion and is estimated to cross Rs.10,000 Billion during this fiscal alone.
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