There are lots of people who would like to buy options on a particular commodity but they do not know which one would be the best.
New traders most especially may be confused because there are numerous options to select from and their choice may bring them either profit or loss so they need to be careful before deciding to buy one.
Options are traded at different times or months.
Options that are traded in a particular month may have various strike prices.
People have to learn what calls or puts are and when prices are falling or rising.
Beginner traders have to figure out where they expect the market to move-going up or going down.
Those who think that the market may be moving upwards will have to buy the call options.
On the other hand, if they feel that the price will decrease, they will have to buy the put options instead.
People have to understand that the options have expiry dates and so the assets that they are dealing with may be worthless at the end if they are not able to capture a move before expiration.
New traders have to realize that each passing day the options that they bought are decreasing in value.
So in buying options, people have to see to it that they still have enough time for them to be able to gain from this type of trading activity.
New traders have to decide whether they will go for a put or a call option.
Traders will need a strike price which is actually the real value of the underlying contract.
They may be able to convert the option as a futures contract.
The strike prices come in three kinds: in the money where the price of the commodity is more than the strike price; at the money where the price is very near the strike price; and out of the money where the price is lesser than the strike price.
These option prices are dependent on probabilities so those who would like to play safe, they may choose the in the money options.
Although these options are considered as more expensive, nevertheless, traders may earn even if there will be no big move towards their direction.
People may choose at the money options as they can give themselves higher leverage and better chances of winning.
New traders can have more contracts with varying strike prices.
If the market moves towards the direction of the traders, then they can earn because of the number of contracts that they have.
The out of the money options may also be considered by traders because they can make good profit if by chance the commodity makes a huge move.
Most of the time though, this kind of option expires and new traders most often lose their money.