Natural Gas call options are purchased by traders who are bullish about natural gas prices. Traders who believe that natural gas prices will fall can buy natural gas put options instead.
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Buying calls gas option puts is not the only way to trade options. Option selling is a popular strategy used by many professional option traders.
More complex option trading strategiesalso known as spreadscan also be constructed by simultaneously buying and selling options. Natural Gas Options vs. Natural Gas Futures Compared to the outright purchase of the underlying natural gas futures, natural gas options offer advantages such as additional leverage as well as gas option ability to limit potential losses.
However, they are also wasting assets that has the potential to expire worthless. Additional Leverage Compared to taking a position on the underlying natural gas futures outright, the buyer of a natural gas option gains additional leverage since the premium payable is typically lower than the margin requirement needed to open a position in the underlying natural gas futures.
Limit Potential Losses As natural gas options only grant the right but not the obligation to assume the underlying natural gas futures position, potential losses are limited to only the premium paid to purchase the option. Flexibility Using options alone, or in combination with futures, a wide range of strategies can be implemented to cater to specific risk profile, investment time horizon, cost consideration and outlook on underlying volatility.
By Andrew Beattie Updated Jan 7, Options allow traders to leverage their bets on the underlying assets represented by the option. These handy financial instruments can be used to trade stocks, bonds, currencies, and even futuresand commodities.
Time Decay Options have a limited lifespan and are subjected to the effects of time decay. The value of a natural gas option, specifically the time value, gets eroded away as time passes.
However, since trading is a zero sum game, time decay can be turned into an ally if one choose to be a seller of options instead of buying them.