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Commodity Price Changes
Novice commodity futures and option traders make the
same mistakes year after year. There's a tremendous
amount of money that changes hands as a result. Make it
HARD for the market to get your money, not easy! These
principles apply to stock trading as well.
Commodity Futures Price Changes
An investor who believes that the price of a commodity
will decline will sell a futures contract. The mechanics
of selling short are that first a commodity futures
contract is sold and then the profit is realized by
buying an offsetting contract at a lower price. If the
commodity declines in price the investor profits. If the
contract increases in price the investor will have
losses. An example of a profitable short trade would be
to sell 1 July $3.65 corn and then close the trade by
buying 1 July $3.60 corn to close.
Commodity Futures Gold Price Changes
The purchase of a call entitles the option buyer the
right, but not the obligation, to purchase a commodity
futures contract at a specified price at any time during
the life of the option. The underlying commodity futures
contract and the price are specified. The purchase of a
put option entitles the option buyer the right, not the
obligation, to sell a specified commodity futures
contract at a specified price. Keep in mind that the
profit realized with an option strategy is reduced by
the option premium. The option's price is determined in
the same fashion that an equity option is determined.
Scott Emerson of Golden Peaks has said that in light of
the current correction taking place with gold, "We
remain bullish on the yellow metal. Despite the recent
price correction the price of gold (June 26, 2006) is
144.50% higher than it was one year ago. The
fundamentals have not changed and Company's focus and
business plan remain unchanged."
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