Options trading (Call, Put) The right to purchase an underlying asset (commodity) at a fixed strike price on a specified future date. To enter into an option contract, the buyer must pay an option premium, which is payable in all circumstances.

A distinction is made between call options and put options. With a call option, the buyer benefits from rising market prices of the underlying commodity. Once a strike price has been agreed with the seller of the call option, the strike price is compared with the market price on the expiry date. If the market price is higher than the strike price, the buyer will exercise the right to buy the underlying asset at the strike price, meaning that the difference, minus the option premium, would represent their profit. This is referred to as the option buyer being ‘in the money’ (ITM). If the market price is lower than the strike price (the option is ‘out of the money’ (OTM)), the buyer is not obliged to exercise the option. The option premium must be paid in all cases upon conclusion of the option.

A put option is the exact opposite of a call option. It allows the buyer to sell an underlying asset (commodity) at a strike price. The buyer is therefore in the money (ITM) if the strike price is above the market price.