Option trading for metal futures

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Financial markets, ie commodities as well as stock market had risen up too fast and too high. In my view, not high enough to short sell, and not low enough to buy. So selling options is the best strategy, getting paid while waiting for better opportunities.

Some trades:

1. Sold 1 lot of Nickel Call option $52,000 Apr 07, premium for 1 lot of nickel is USD4,320, margin required is USD25,500, so yield is 16% in just 2 weeks time. Expiration of option is on 4 Apr 07.

In the senario that nickel price goes up, and my options get exercised, I'll have a short position of Nickel futures at $52,000. I think shorting at $52,000 is a good level.


2. Sold Aluminum call option $2850 Apr 07, premium for 2 lot of Aluminum is USD700, margin required is USD4,950/lot , so yield is 7% in just 2 weeks time. Expiration of option is on 4 Apr 07.

In the senario that aluminum price goes up, and my options get exercised, I'll have a short position of aluminum futures at $2850. I think shorting aluminum at $2850 is a good level. Aluminum is still trading at the range of $2900 to $2600.

For the chart of the nickel and aluminum:
http://basemetal-trading.blogspot.com/2007/03/option-trading.html

 

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You can earn money by selling options on metal futures. The return is much more than selling stock options, yield is easily more than 5% a month.

Aluminum chart: http://basemetal-trading.blogspot.com/2007/04/opportunity-arises-again.html. This metal is trading at a range of $2600 to $2900, you can:

1. Sell a call option when aluminum price is near to $2850 with a strike price of $2900 or $2950. So in the event that the price goes above $2900 on expiration date, you will have a short position at $2900. But its ok to have a short position at $2900, because this metal is trading in range, it is likely to move down back to $2700 level.

But if price does not go up to $2900 on expiration date, you get to keep the premium.

Alternatively

2. Sell a put option when aluminum price is near to $2700 with a strike price of $2650 or $2600. So in the event that the price goes below $2650 on expiration date, you will have a long position at $2650. But its ok to have a long position at $2650, because this metal is trading in range, it is likely to move down back to $2700 level. But if price does not go down to $2650, you get to keep the premium.

How much is the premium depends on the market condition. Recently we have a customer selling a call option at strike $3000, and get a premium of $13/ton. There are 25 tons of aluminum in 1 futures contract, so you get 25 x 13 = USD325. Margin required is about USD4950, so return a month is 6.5%. 1 year (12 months) is 78%. But please note that this money making opportunity may not occur every month.

Other options examples:

http://basemetal-trading.blogspot.com/2007/03/option-trading.html