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How Options Work
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The Right But Not the Obligation

 

Choice is the main feature of an option. Buying a livestock option provides the right, but not the obligation, to take a long or short position in a specific futures contract at a fixed price on or before an expiration date. The right granted by the option contract is purchased from the option seller and called the premium. The option seller, or writer, keeps the premium whether the option is used or not. The seller must fulfill the contract terms if the buyer exercises the option.

 

Buying an option means buying a choice. The buyer can choose to let the option expire without a commitment or delivery obligation. This is not an alternative with most cash or agricultural futures contracts.

 

Details: How Options Work

Legal Disclaimer and Risk Disclosure: Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leverages investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All orders are entirely at your risk, and it will be your responsibility to monitor these orders. There are limitations to the protection given by stop loss orders therefore we give no assurance that limit or stop loss orders will be executed, even if the limit price is met, in full or at all.
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