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Day Trading Derivatives

One of the preferred day trading vehicles are financial contracts called derivatives which, as their name implies, derive their prices from the costs of an underlying asset. There are mainly three sorts of derivatives:

Options: a contract that gives you the choice or right to purchase or sell something at any time up to a future date for a set price. The option to purchase is named a call and the choice to sell known as a put. So if you think the value of an asset goes up, you would buy a call or sell a put on that asset (and even do both). In the event you thought the price was going down, you’ll buy a put or sell a call.

Ceramic moment saddleFutures: a contract that provides you the obligation to buy something at a future date for a fixed price. These are used rather a lot by farmers to lock in the price of their crops so they have some protection against price fluctuations and by exporters or importers who can reduce their risk us oil consumption by country of currency fluctuations by locking in exchange rates before importing or exporting. An interesting side note here is that with commodities, a farmer could theoretically close out a trade by physically delivering his bushels of corn but we obviously would wish cash to shut out a currency contract. However in the real world, all trades are settled in cash before the contract expires.

The above two derivatives are the commonest but a 3rd can also be used often enough to deserve mention: stock warrants. These are issued by an organization instead of an exchange and provides you the choice to purchase more stock of the corporate at a future date for a fixed price, quite like options.

Crucial and biggest options market in the US is the CBOE or Chicago Board Options Exchange where options on stocks are traded. Other markets are the us oil consumption by country CBOT (Chicago Board Of Trade) for corn, wheat, soybeans etc. CME (Chicago Mercantile Exchange) for cattle, pork bellies etc. NYBOT (New York Board Of Trade) for coffee, sugar and cocoa and NYMEX (New York Mercantile Exchange for metals and petroleum.

Disclaimer: The author is presenting information he believes to be correct but does not guarantee that it’s accurate and it is your responsibility to do your own due diligence. This information ought to be used a starting point for further inquiry and is not meant to be more than a quick introduction.