One of the attractive features of futures options trading is its versatility. With commodity trading, you don’t just buy or sell; each decision brings other possibilities and more interesting variables. Below are some of the typical ticket types in commodity futures trading.
The market order
The market order is the most common order for the beginner investing in commodity trading. Once you have decided to open or close a position, you can use a market order. This commodity futures trading order is executed at the best possible price at the time the order reaches the trading pit.
The limit order
A limit order is a directive to buy or sell at a specific price. In commodity trading, limit orders to buy are placed below the market while limit orders to sell are placed above the market. Since the market may never reach a limit order, an investor could miss the position if they use a limit order. In most cases, with this commodity futures trading order, the market must trade to the limit price for the client to get a fill.
Market if hit (MIT)
MIT orders have the opposite purpose to stop orders. MIT buy orders are placed below the market and MIT sell orders are placed above the market. An MIT order is typically used to enter the market or initiate a trade. An MIT order is similar to a limit order in that a specific price is placed on the order; an MIT order becomes a market order once the limit price is reached or crossed. In commodity trading, an MIT order would be considered one of the basic commodity trading orders.
Stop orders can be used for three different strategies.
o To protect against big losses on long or short positions (like stop loss orders)
o Protecting a profit on an existing position
o To start a new long or short position
fill or kill
The fill or elimination order is used by successful traders who want an immediate fill, but at a specific price. The broker on the floor will bid three times on the order and if it is not filled, it is killed or cancelled.
A spread is used when trading commodities by an investor who wants to take long and short positions at the same time in an effort to profit from the price difference, or “spread” between two prices. A spread can be established between different months of the same product, between related products or between the same product or related products traded on two different exchanges. For example: buy 1 June corn, sell 1 September corn plus 5 on the September sell side. This means that the client wants to initiate or close out the spread when September corn prices are 5 points higher than June corn prices.
Spread of bullish calls
A bullish call spread is an advanced commodity options trading strategy that can be used during times of high volatility. Spread is buying a call at or near the money and selling a call out of the money. The maximum profit potential is the difference between the strike prices minus the trading costs. The maximum loss potential is the full cost of the spread.
Bear Put Spread
A bearish put spread is a commodity futures trading technique that is used like a bullish call spread, but is used in anticipation of falling prices and therefore uses put options instead of options. calls. This type of commodity futures trading can be considered a defensive investment because it is done during periods of high volatility.
A straddle is a commodity futures trading strategy that is used to take advantage of a sharp rise or fall in prices. This strategy, a buy straddle, consists of buying a put and a call at the same strike price and preferably at the money. The investor hopes that the call or put premium will increase enough to offset the costs and make a profit.
A strangle is a commodity futures trading strategy that is used to take advantage of a sharp upward or downward price move, much like the straddle, but uses strike prices outside of the money. An example of a buy squeeze would be to buy a December corn call at $3.10 and buy a December corn put at $2.90 when the December corn futures price is 3 $. This commodity trading strategy seeks to take advantage of different strike prices.
Commodities trading is very interesting because there are so many possible positions to take. By learning these positions, an investor can make money trading commodity futures, whether implementing a calendar spread or buying put options.