What Is a Commodity Option?
A commodity option is a contract in which a person, known as an option writer, sells an investor the right to buy or sell a commodity at a guaranteed price for a fixed period of time. Options are traded on a wide array of commodities, including grains, meats, and currencies. Oil, metals and financial instruments are also common commodities for commodity options investing. Some people confuse commodity futures and commodity options. There are actually two major differences. A commodity option creates a right to buy the commodity. In contrast, a commodity futures contract creates a legal obligation to buy the commodity. The other important distinction is a that futures contract must be honored by a specific date. An option may be exercised at any point during a limited time period.
