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Buying Options on Futures Contracts

A Guide to Uses and Risks
Source: National Futures Association - This publication is the property of the National Futures Association.

Table of Contents:
  1. Introduction
  2. Part One: The Vocabulary of Options Trading
  3. Part Two: The Arithmetic of Option Premiums
    • Intrinsic Value
    • Time Value
  4. Part Three: The Mechanics of Buying and Writing Options
    • Commission Charges
    • Leverage
    • The First Step: Calculate the Break-Even Price
    • Factors Affecting the Choice of an Option
    • After You Buy an Option: What Then?
    • Who Writes Options and Why
    • Risk Caution
  5. Part Four: A Pre-Investment Checklist
  6. NFA Information and Resources

Buying Options on Futures Contracts:

A Guide to Uses and Risks

National Futures Association is a Congressionally authorized selfregulatory organization of the United States futures industry. Its mission is to provide innovative regulatory programs and services that ensure futures industry integrity, protect market participants and help NFA Members meet their regulatory responsibilities. This booklet has been prepared as a part of NFA’s continuing public education efforts to provide information about the futures industry to potential investors.

Disclaimer: This brochure only discusses the most common type of commodity options traded in the U.S.—options on futures contracts traded on a regulated exchange and exercisable at any time before they expire. If you are considering trading options on the underlying commodity itself or options that can only be exercised at or near their expiration date, ask your broker for more information.


Copyright 2000 National Futures Association

Past performance is not necessarily indicative of future results. The risk of loss exists in futures and options trading.