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Buying (Going Long) Coal Futures to Profit from a Rise in Coal Prices
If you are bullish on coal, you can profit from a rise in coal price by taking up a long position in the coal futures market. You can do so by buying (going long) one or more coal futures contracts at a futures exchange.
Example: Long Coal Futures Trade
You decide to go long one near-month NYMEX Coal Futures contract at the price of USD 74.45 per ton. Since each NYMEX Coal Futures contract represents 1550 tons of coal, the value of the futures contract is USD 115,398. However, instead of paying the full value of the contract, you will only be required to deposit an initial margin of USD 18,900 to open the long futures position.
Assuming that a week later, the price of coal rises and correspondingly, the price of coal futures jumps to USD 81.90 per ton. Each contract is now worth USD 126,937. So by selling your futures contract now, you can exit your long position in coal futures with a profit of USD 11,540.
Long Coal Futures Strategy: Buy LOW, Sell HIGH | |
BUY 1550 tons of coal at USD 74.45/ton | USD 115,398 |
SELL 1550 tons of coal at USD 81.90/ton | USD 126,937 |
Profit | USD 11,540 |
Investment (Initial Margin) | USD 18,900 |
Return on Investment | 61.06% |
Margin Requirements & Leverage
In the examples shown above, although coal prices have moved by only 10%, the ROI generated is 61.06%. This leverage is made possible by the relatively low margin (approximately 16.38%) required to control a large amount of coal represented by each contract.
Leverage is a double edged weapon. The above examples only depict positive scenarios whereby the market is favorable towards you. If the market turn against you, you will be required to top up your account to meet the margin requirements in order for your futures position to remain open.
Learn More About Coal Futures & Options Trading
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Buying Straddles into Earnings
Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]
Writing Puts to Purchase Stocks
If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]
What are Binary Options and How to Trade Them?
Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]
Investing in Growth Stocks using LEAPS® options
If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]
Effect of Dividends on Option Pricing
Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]
Bull Call Spread: An Alternative to the Covered Call
As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]
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Dividend Capture using Covered Calls
Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]
Leverage using Calls, Not Margin Calls
To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]
Day Trading using Options
Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]
What is the Put Call Ratio and How to Use It
Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]
Understanding Put-Call Parity
Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]
Understanding the Greeks
In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]
Valuing Common Stock using Discounted Cash Flow Analysis
Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]
Buying (Going Long) Heating Oil Futures to Profit from a Rise in Heating Oil Prices
If you are bullish on heating oil, you can profit from a rise in heating oil price by taking up a long position in the heating oil futures market. You can do so by buying (going long) one or more heating oil futures contracts at a futures exchange.
Example: Long Heating Oil Futures Trade
You decide to go long one near-month NYMEX Heating Oil Futures contract at the price of USD 1.4777 per gallon. Since each NYMEX Heating Oil Futures contract represents 42000 gallons of heating oil, the value of the futures contract is USD 62,063. However, instead of paying the full value of the contract, you will only be required to deposit an initial margin of USD 10,125 to open the long futures position.
Assuming that a week later, the price of heating oil rises and correspondingly, the price of heating oil futures jumps to USD 1.6255 per gallon. Each contract is now worth USD 68,270. So by selling your futures contract now, you can exit your long position in heating oil futures with a profit of USD 6,206.
Long Heating Oil Futures Strategy: Buy LOW, Sell HIGH | |
BUY 42000 gallons of heating oil at USD 1.4777/gal | USD 62,063 |
SELL 42000 gallons of heating oil at USD 1.6255/gal | USD 68,270 |
Profit | USD 6,206 |
Investment (Initial Margin) | USD 10,125 |
Return on Investment | 61.2972% |
Margin Requirements & Leverage
In the examples shown above, although heating oil prices have moved by only 10%, the ROI generated is 61.2972%. This leverage is made possible by the relatively low margin (approximately 16.3140%) required to control a large amount of heating oil represented by each contract.
Leverage is a double edged weapon. The above examples only depict positive scenarios whereby the market is favorable towards you. If the market turn against you, you will be required to top up your account to meet the margin requirements in order for your futures position to remain open.
Learn More About Heating Oil Futures & Options Trading
You May Also Like
Continue Reading.
Buying Straddles into Earnings
Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]
Writing Puts to Purchase Stocks
If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]
What are Binary Options and How to Trade Them?
Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]
Investing in Growth Stocks using LEAPS® options
If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]
Effect of Dividends on Option Pricing
Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]
Bull Call Spread: An Alternative to the Covered Call
As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]
Dividend Capture using Covered Calls
Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]
Leverage using Calls, Not Margin Calls
To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]
Day Trading using Options
Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]
What is the Put Call Ratio and How to Use It
Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]
Understanding Put-Call Parity
Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]
Understanding the Greeks
In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]
Valuing Common Stock using Discounted Cash Flow Analysis
Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]
Buying (Going Long) Coal Futures to Profit from a Rise in Coal Prices
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Binarium
Top Binary Options Broker 2020!
Best Choice For Beginners!
Big Sign-Up Bonus!
Free Trading Education!
Free Demo Account! -