The market of commodity option is very big and this market is used by the producers to obtain the right of purchasing and selling the commodities at a particular price and within a certain time. This means that the holder of the option is provided with the opportunity to sell the goods at a certain price when the market price of that commodity falls down.
The commodity markets are the places where each and every type of commodities are traded. Almost everything including the precious metals and the agricultural products are traded here. There are several commodities exchange, which exists in various parts of the world. The commodities market has a similarity with the stock market because the rates of different commodities fluctuate quickly. So, as a protective shield, the commodity options are used.
The purchasers of the commodity market only purchases the right and not the obligation to buy or sell the commodity.
The purchasing and selling of the commodity depends solely on the desire of the option holder.
The commodity options are of two types and these are:
The call option provides the option holder with the right to purchase the particular commodity from the option seller at a fixed price. The deal should be done within a particular span of time. Once the time period is over the option becomes worthless. This option is very useful when the prices are rising because in such case the difference between the purchasing price and the actual market price of that commodity is going to be the profit of the commodity option holder.
On the other hand, the put options are similar to the call option in many cases. This also provides the same kind of right to the investor. The difference with the previous option is that the put option always provide the rights of selling the commodity at a certain price and within a particular span of time. within this period if the prices of the commodity goes down, the difference between the actual and selling price of the commodity, would be the profit of the producer or the investors.