Leveraging Your Leverage
Some traders assume that trading options on futures contracts
is the same as trading options on stocks. This is not identical. Although the basic distinctions and definitions of options are the same in all instances, trading options on futures contracts (also broadly called commodities) involves special risks and qualifications.
In the 1980s a new investment device was introduced within the futures industry. Like stocks, futures could be traded on exchanges. The very first option with a futures contract as the underlying was introduced by the Chicago Board of Trade (CBOT) in 1982, when it introduced options on Treasury bond futures.
Participation in futures options was limited for many years to insiders working as commodities brokers, with very little involvement among individual nonprofessional traders. Today, futures options are widely available, and virtually anyone can perform minimal research to discover how to get into this market.
By Michael C. Thomsett