What are options?

When you purchase an options contract, you’re not buying an asset — rather, you’re buying a contract that gives you the right to buy or sell an asset at a specific price by a fixed date, depending on the type you choose. Note that we said it gives you the right to buy an asset; this isn’t an obligation.

Therefore, options fall under the derivatives category, because their value depends on the value of something else (the asset you’ll have the right to buy or sell). The asset in question could be a commodity, a currency

Commodity trade options?

It’s impossible to understand how commodity options work without knowing what commodity option contracts are.

An option gives you the right to buy or sell an asset at a fixed price (known as a strike price)  but you’re not under any obligation to take up this opportunity

How do options work?

When you buy an options contract, the risk involved is minimal, because you don’t have the obligation to exercise the contract; you have a choice. Therefore, if you have an options contract to buy but the strike price ends up being higher than the asset’s market price, you can decide not to exercise the contract.

What are commodity work?

A commodity option contract gives you the right to either buy or sell the asset associated with the contract. There’s no obligation to buy or sell, but if you want to do so, you must do it before the expiration date and at a fixed price agreed to when you signed the contract.

Commodity options are different to equity options, which involve similar mechanisms but only refer to buying and selling company shares rather than commodities.