Call and Put. An individual may purchase a CALL option (Go Long) if he/she believes that the price of the underlying futures contract will rise. If the individual believes that the price of particular futures contract will decline, he/she could purchase a PUT option (Go Short). Example #1: Suppose you felt that the price of corn was going to rise over the next few months and you wanted to benefit for the price increase. It’s January 2nd and your broker tells you that the July futures contract for corn is currently trading at 250 ½ cents ($2.50 ½ per bushel). You believe that price will rise so you decide to purchase a call option on the July futures contract. Looking at the price (on the Baron’s Trading Group website) you see the following prices: You decide to purchase the July 260 call option and your order is filled at 4 cents. Since each cent is equal to $50, the price of the option (known as PREMIUM) is $200. If the price of corn rises, your call option will gain in value. Over the next two months the price of corn begins to move higher. It’s now mid-March and the July contract for corn is trading at 282 and your call option is now worth 25 cents ($1,250). Because the price of corn is trading above the strike price of 260, your options is said to be in-the-money. At this point, you have several alternatives:
Call and Put
