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Commodity Options: Trading and Hedging Volatility in the World's Most Lucrative Market
Don't Miss out on Today's Hottest Trading Arena: Commodity Options! "The authors have written the definitive work on trading commodity options. Their in-depth knowledge of this subject is legendary among industry professionals and expert traders alike, and their ability to relay their knowledge through text, pictures, and the spoken word is unparalleled in our industry." --Lan Turner, CEO, Gecko Software, Inc. "This book captures the realities of commodity option trading in a simple and easy- to-read presentation that will be beneficial for traders of all sizes and skill levels." --Chris Jarvis, CFA, CMT, Caprock Risk Management, LLC "Even the most experienced investors often overlook the fact that options on futures are fundamentally different from options on stocks. This book fills that gap and sets the record straight with clear and concise descriptions that are easy to understand. Guaranteed to become a true source of value creation for anyone interested in trading commodity options." --Jeff Augen, author, The Volatility Edge in Options Trading "Commodity Options arms readers with the strategies and tactics needed to take a more active approach to managing risk in today's turbulent markets. The authors exhaustively break down every component of a commodity option to its lowest common denominator, making this book an essential piece of information for those looking to expand their trading tool box or further build on existing option strategies." --John Netto, Chief Investment Strategist, NetBlack Capital and author, One Shot--One Kill Trading Investors worldwide are discovering the enormous opportunities available through commodity options trading. However, because commodities have differing underlying characteristics from equities, commodity -options behave differently as well. In this book, two of the field's most respected analysts present strategies built from the ground up for commodity options. Carley Garner and Paul Brittain begin with a quick primer on how commodity options work, how they evolved, and why conventional options strategies often fail in the commodity options markets. Next, using detailed examples based on their own extensive research, they show how to leverage the unique characteristics of commodity options in your own trades. You'll walk through trades from "top to bottom," master both long- and short-option approaches, and learn powerful strategies usually ignored in options books. For example, the authors introduce synthetic swing trading strategies that systematically reduce volatility from the market. This book's easy-to-use trading strategies are strategically employed by the author's clients every day: With Commodity Options, you can work to put the odds in your favor, too! - Why commodity options are different-and what it means to you
Understand key differences in the underlying assets and the logistics of market execution - Systematically rewrite the odds in your favor
Four ways to make winning trades more likely-and losing trades less common - When to trade short options-and how to manage the risk
Why careful option selling may improve your odds of success - Master strategies designed for diverse market conditions
Combine long and short options to create the right strategy for any market opportunity - Exploit short-lived trends through "synthetic" swing trading
Get the advantages of futures contracts without the volatility
Understand key differences in the underlying assets and the logistics of market execution - Systematically rewrite the odds in your favor
Four ways to make winning trades more likely-and losing trades less common - When to trade short options-and how to manage the risk
Why careful option selling may improve your odds of success - Master strategies designed for diverse market conditions
Combine long and short options to create the right strategy for any market opportunity - Exploit short-lived trends through "synthetic" swing trading
Get the advantages of futures contracts without the volatility
260 pages, Hardcover
First published January 23, 2009
3 people are currently reading
81 people want to read
About the author
Carley Garner
31 books27 followersSenior Commodity Market Strategist and Broker, STOCKS & COMMODITIES Magazine Columnist, TheStreet.com Contributor, and Author
Carley Garner is an experienced futures and options broker with DeCarley Trading, a division of Zaner Group, in Las Vegas, Nevada. She is also the author of Higher Probability Commodity Trading; A Trader's First Book on Commodities (two editions); Currency Trading in the Forex and Futures Markets; and Commodity Options. Her e-newsletters, The DeCarley Perspective and The Financial Futures Report, have garnered a loyal following; she is also proactive in providing free trading education at www.DeCarleyTrading.com.
Carley is a magna cum laude graduate of the University of Nevada Las Vegas, from which she earned dual bachelor’s degrees in finance and accounting. Carley jumped into the options and futures industry with both feet in early 2004 and has become one of the most recognized names in the business. Her commodity market analysis is often referenced on Jim Cramer’s Mad Money on CNBC and she is a regular contributor to TheStreet.com and its Real Money Pro service.
Carley authors a monthly column in STOCKS & COMMODITIES magazine and has been featured in the likes of Futures, Active Trader, Option Trader magazines, and many more. She has been quoted by Investor’s Business Daily and The Wall Street Journal and has also been known to participate in radio interviews. She can be found on the speaking circuit.
Carley Garner is an experienced futures and options broker with DeCarley Trading, a division of Zaner Group, in Las Vegas, Nevada. She is also the author of Higher Probability Commodity Trading; A Trader's First Book on Commodities (two editions); Currency Trading in the Forex and Futures Markets; and Commodity Options. Her e-newsletters, The DeCarley Perspective and The Financial Futures Report, have garnered a loyal following; she is also proactive in providing free trading education at www.DeCarleyTrading.com.
Carley is a magna cum laude graduate of the University of Nevada Las Vegas, from which she earned dual bachelor’s degrees in finance and accounting. Carley jumped into the options and futures industry with both feet in early 2004 and has become one of the most recognized names in the business. Her commodity market analysis is often referenced on Jim Cramer’s Mad Money on CNBC and she is a regular contributor to TheStreet.com and its Real Money Pro service.
Carley authors a monthly column in STOCKS & COMMODITIES magazine and has been featured in the likes of Futures, Active Trader, Option Trader magazines, and many more. She has been quoted by Investor’s Business Daily and The Wall Street Journal and has also been known to participate in radio interviews. She can be found on the speaking circuit.
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Displaying 1 - 9 of 9 reviews
October 9, 2010
When it comes to market education I am very critical. The first thing i recommend to anyone about to pick up this book, is to make sure you have a really good comprehension of proper risk management. There is not a shred of dealing with risk in this book. That being said, within the first 30 pages, two very big red flags went up.
The first flag was a comment about loss. "[I]n our opinion, limited risk is not necessarily synonymous with less risk. In fact, in most cases limited risk, although it provides a cap to potential losses, may create a scenario in which your probability of loss is extremely great." Thinking like this is considered by most in the risk managment business to be a major faux pas. A lot of people, including professional traders, seem to have issue with the fact that most market success comes from traders who have accepted that trading is a losers game. In other words, limiting your losses because it is impossible to predict the market trend every time can allow you to ultimately make more attempts at making a gain that will negate your losses and hopefully more. A good trader, in my opinion, should not be upset with a loss, but pride himself/herself that he/she was able to accept a minor loss and trade another day.
The second flag came about in the attempt to, not only prove that futures and stocks are different, but that the options contracts were also different. A futures contract is essentially an option contract for an underlying commodity. A futures option is simply an option contract for an option contract. However, the part that i am in disagreement with is that an option on a future would behave significantly different from an option on a stock. The commodity represented by the future has very little volatility and the system of futures and commodities is very similar to that of stock. Granted the futures have an expiration, but apart from that, there is very little difference behavior-wise. Example - A commodity may have a very robust decline in price causing the leveraged future to follow suit. At the same time, a company could undergo litigation or come in front of the FDA and be subject to a rapid stock drop. Futures and stocks are less like apples and oranges and more like apples and pears... very similar, but definitely different.
This book greatly pushed me off of considering stepping into commodity futures trading. I have heard a lot of good things about other forms of futures, however. The writing style was good and the book was informative for anyone already into futures trading, but the discounted trade prices of futures are still not worth the effort to a small trader in my opinion.
The first flag was a comment about loss. "[I]n our opinion, limited risk is not necessarily synonymous with less risk. In fact, in most cases limited risk, although it provides a cap to potential losses, may create a scenario in which your probability of loss is extremely great." Thinking like this is considered by most in the risk managment business to be a major faux pas. A lot of people, including professional traders, seem to have issue with the fact that most market success comes from traders who have accepted that trading is a losers game. In other words, limiting your losses because it is impossible to predict the market trend every time can allow you to ultimately make more attempts at making a gain that will negate your losses and hopefully more. A good trader, in my opinion, should not be upset with a loss, but pride himself/herself that he/she was able to accept a minor loss and trade another day.
The second flag came about in the attempt to, not only prove that futures and stocks are different, but that the options contracts were also different. A futures contract is essentially an option contract for an underlying commodity. A futures option is simply an option contract for an option contract. However, the part that i am in disagreement with is that an option on a future would behave significantly different from an option on a stock. The commodity represented by the future has very little volatility and the system of futures and commodities is very similar to that of stock. Granted the futures have an expiration, but apart from that, there is very little difference behavior-wise. Example - A commodity may have a very robust decline in price causing the leveraged future to follow suit. At the same time, a company could undergo litigation or come in front of the FDA and be subject to a rapid stock drop. Futures and stocks are less like apples and oranges and more like apples and pears... very similar, but definitely different.
This book greatly pushed me off of considering stepping into commodity futures trading. I have heard a lot of good things about other forms of futures, however. The writing style was good and the book was informative for anyone already into futures trading, but the discounted trade prices of futures are still not worth the effort to a small trader in my opinion.
November 6, 2023
Despite claiming that "options on futures" are very different from "options on stocks", this book delivers very little added value over and above any decent book about trading options on stocks.
In their introduction, the Authors start strong: (quote) "Many books have been written about options on futures, unfortunately we believe that many of them are either contradictory or just a meandering compilation of exchange-generated research and material. In our opinion, much of the available literature leaves you even more confused than you were before you opened the book. With this book we hope that we have taken a step toward changing what has been the norm in this genre.
The biggest mistake that some authors make is to apply stock option theory to options on futures. It is a misguided perception to believe that an “option is an option.” Although they are spelled the same, they aren’t comparable. The nature of the underlying vehicle differs greatly, causing the options to take on completely different characteristics. After all, everybody agrees that trading stocks is different from trading futures, so why would anybody assume that trading options on stocks is synonymous with trading options on futures? It is our observation that authors of such material may simply be looking to capitalize on book and course sales through the recycling of stock option theory."
Ok so that's a strong start. How dare those hacks just re-package their tired old stock option stuff and put a bit of a "futures sauce" over it and sell it as something useful?!
But if you read on, this is exactly what the current book seems to be doing as well. After a brief, even cursory, discussion about the differences between stocks and futures, the book follows the same old familiar option strategies explanation of any middling run-of-the-mill stock options trading book - only this time with price action charts taken from futures & their options, instead of stocks and their options. How ironic.
The notable differences between options on stock and options on futures are all linked to the differences between the underlying stocks and futures. The option contracts themselves work just the same from a trading point of view. There is a discussion to be had on the proper valuation method for options on futures vs. for options on stock, but this discussion is not had in this book.
Some statements struck me as odd: (quote) "[...] an option on a stock provides traders with a leveraged trading vehicle; an option on a futures contract provides leverage to an already leveraged vehicle. As you can imagine, the combination of the two can be magnificent (if you are on the right side of the trade of course). Unfortunately, leverage is a double-edged sword and can work against the trader just as it works for them at times. [...] Thus, an option on a futures contract with similar positioning and circumstances as an option on a stock will likely be comparatively more expensive. Note that this is based on our personal familiarity and interpretation and would be difficult to prove mathematically. This is because we are, in essence, trying to compare apples to oranges. In fact, many out there may not agree with our conclusions, but you are free to form your own opinion." Indeed. The reason that options on futures tend to be more expensive is because the per unit price volatility of the underlying is amplified by the (larger) amount of units that make up the futures contract. A futures contract concerns multiple units of the underlying, for example 1,000 barrels of oil in a crude oil future, or 5,000 bushels of wheat in a wheat future. So where an option on a stock is priced according to the expected range of price movements of its 100 units of the underlying stock, an option on a crude oil future is priced according to the expected range of price movements of its underlying 1,000 barrels of oil. That, and the fact that commodities typically undergo much larger price swings than most stocks.
Authors are also given to the occasional snide remarks: (quote) "There are only so many new ideas available in the world, so the guys that dream these things up (an attempt at immortality) usually take what is available, change it a little by adding a mathematical formula or some other special flavoring, and then put their name on it. In the 1990s, salesmen were pitching “The Ultimate Oscillator!”; however, since we don’t know anybody who uses it nor do we ever see any reference to it, it apparently didn’t live up to its name."
Now, I am all for sticking it to the Technical Analysis Crowd, even to Larry Williams, but I must caution against doing so in a book where you give ample evidence of your own market numerology ("Slow Stochastic Moving Average") and chartist palmistry ("Fibonacci projection ruler" - because we find the Fibonacci numbers everywhere in nature). Pot & Kettle and all that.
Two stars for this effort by these two "authors of such material [who] may simply be looking to capitalize on book and course sales through the recycling of stock option theory."
In their introduction, the Authors start strong: (quote) "Many books have been written about options on futures, unfortunately we believe that many of them are either contradictory or just a meandering compilation of exchange-generated research and material. In our opinion, much of the available literature leaves you even more confused than you were before you opened the book. With this book we hope that we have taken a step toward changing what has been the norm in this genre.
The biggest mistake that some authors make is to apply stock option theory to options on futures. It is a misguided perception to believe that an “option is an option.” Although they are spelled the same, they aren’t comparable. The nature of the underlying vehicle differs greatly, causing the options to take on completely different characteristics. After all, everybody agrees that trading stocks is different from trading futures, so why would anybody assume that trading options on stocks is synonymous with trading options on futures? It is our observation that authors of such material may simply be looking to capitalize on book and course sales through the recycling of stock option theory."
Ok so that's a strong start. How dare those hacks just re-package their tired old stock option stuff and put a bit of a "futures sauce" over it and sell it as something useful?!
But if you read on, this is exactly what the current book seems to be doing as well. After a brief, even cursory, discussion about the differences between stocks and futures, the book follows the same old familiar option strategies explanation of any middling run-of-the-mill stock options trading book - only this time with price action charts taken from futures & their options, instead of stocks and their options. How ironic.
The notable differences between options on stock and options on futures are all linked to the differences between the underlying stocks and futures. The option contracts themselves work just the same from a trading point of view. There is a discussion to be had on the proper valuation method for options on futures vs. for options on stock, but this discussion is not had in this book.
Some statements struck me as odd: (quote) "[...] an option on a stock provides traders with a leveraged trading vehicle; an option on a futures contract provides leverage to an already leveraged vehicle. As you can imagine, the combination of the two can be magnificent (if you are on the right side of the trade of course). Unfortunately, leverage is a double-edged sword and can work against the trader just as it works for them at times. [...] Thus, an option on a futures contract with similar positioning and circumstances as an option on a stock will likely be comparatively more expensive. Note that this is based on our personal familiarity and interpretation and would be difficult to prove mathematically. This is because we are, in essence, trying to compare apples to oranges. In fact, many out there may not agree with our conclusions, but you are free to form your own opinion." Indeed. The reason that options on futures tend to be more expensive is because the per unit price volatility of the underlying is amplified by the (larger) amount of units that make up the futures contract. A futures contract concerns multiple units of the underlying, for example 1,000 barrels of oil in a crude oil future, or 5,000 bushels of wheat in a wheat future. So where an option on a stock is priced according to the expected range of price movements of its 100 units of the underlying stock, an option on a crude oil future is priced according to the expected range of price movements of its underlying 1,000 barrels of oil. That, and the fact that commodities typically undergo much larger price swings than most stocks.
Authors are also given to the occasional snide remarks: (quote) "There are only so many new ideas available in the world, so the guys that dream these things up (an attempt at immortality) usually take what is available, change it a little by adding a mathematical formula or some other special flavoring, and then put their name on it. In the 1990s, salesmen were pitching “The Ultimate Oscillator!”; however, since we don’t know anybody who uses it nor do we ever see any reference to it, it apparently didn’t live up to its name."
Now, I am all for sticking it to the Technical Analysis Crowd, even to Larry Williams, but I must caution against doing so in a book where you give ample evidence of your own market numerology ("Slow Stochastic Moving Average") and chartist palmistry ("Fibonacci projection ruler" - because we find the Fibonacci numbers everywhere in nature). Pot & Kettle and all that.
Two stars for this effort by these two "authors of such material [who] may simply be looking to capitalize on book and course sales through the recycling of stock option theory."
February 22, 2021
If someone is new to options trading, working with commodity options directly is a bad idea. I was expecting this book to have advanced commentary on the finer details of options trading. Or maybe how commodity options have any edge. All I found was introductory explanations for spreads, simple strategies and when to use them. That's why I skimmed through the book.
TLDR; This is for beginners. If you're excited about futures options, go watch Tom Sosnoff's talk called "Breaking Down Futures."
TLDR; This is for beginners. If you're excited about futures options, go watch Tom Sosnoff's talk called "Breaking Down Futures."
September 21, 2023
Was an excellent primer on options and I got a sense of the different variables involved with commodities. Describes in detail the different basic and not so basic options strategies and gives a practical overview of their mechanics.
It definitely got a little repetitive covering the different option strategies with vary similar mechanics.l but overall was well done for advanced trader
It definitely got a little repetitive covering the different option strategies with vary similar mechanics.l but overall was well done for advanced trader
December 2, 2015
I trade equity options and am familiar with general options strategies. Picked up this book chiefly to learn more about commodities futures options. However, this book turned out to be heavy on generic options strategies which does not provide me with any unique insights. Apart from that, most of the well meaning advise from the author on risk management gleaned from her practical experience are sound and logical.
I hope Ms Carley Garner would publish another volume specifically on option strategies for commodity futures for noobs not familiar with futures trading.
I hope Ms Carley Garner would publish another volume specifically on option strategies for commodity futures for noobs not familiar with futures trading.
May 7, 2009
I have been a registered commodity broker since the fall of 2008 and it was this book that quickly brought me up to speed in terms of options. Many in the industry prefer futures trading due to its simplicity, but they are overlooking great opportunities to reduce market and trading account volatility. The author is a collegue of mine, so perhaps my opinion is biased but I urge you to read this book and evaluate it for yourself.
May 6, 2009
This is a great book for beginners and experienced traders alike. Nice visuals with clean, concise and entertaining text. For those looking to get involved in the futures markets, it it is a must have.
May 8, 2009
Of course I like my own book, how could I give it anything else but 5 stars :)
March 5, 2015
Personally did not take much away from it, a lot of general option strategies
Displaying 1 - 9 of 9 reviews