WHAT IS THE OPTIONS MARKET?

Options on futures open the door to a host of versatile, economical trading strategies; by using options alone, or in combination with futures contracts, strategies can be found to cover virtually any risk profile, time horizon, or cost consideration.

Options on futures provide:

• The ability to hedge cash and futures positions against an adverse price direction without foregoing the benefits of favorable price movements.
• The availability of hedging insurance at many different levels of cost and degrees of protection.
• A means for businesses and investors to act aggressively or conservatively on views about the direction and volatility of prices for energy, precious metals, copper, and aluminum.

Because the underlying instrument of an options contract is normally a futures contract for a specific product, market participants can use options to cover themselves against volatile swings in futures prices, just as futures can be used to protect against volatile moves in the prices of the underlying product.