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. Literally, you have the option of whether to buy or sell — but only for a certain period of time.

The point at which you can exercise your contract depends on which type of options contract you take out:

  • American-style options. Allow you to exercise your right to buy or sell at any point before the expiration date.
  • European-style options. Only allow you to exercise your right to buy or sell on the precise expiration date.

European-style options have found favor in India, and all option contracts in the contract expire on the same day: The final Thursday of the month.