A commodity option contract is a decaying asset that will expire. As an option contract draws near its expiration date, set by the exchanges, both the time value and intrinsic value diminish. Time value is premium in relation to days until expiration. Intrinsic value is the premium in relation to the strike price’s distance from underlying futures contract price.
Many traders have heard about an option’s delta, but they have no idea what it means or how they can implement it in their own trading strategy.
Many new traders have a hard time figuring out whether they want to enter a trade using a futures contract or by purchasing an option. Some like the potential futures offer while others like the limited risk that comes with purchasing a call or a put option. This article will explain the two and help you to figure out what scenarios might be more appropriate for trading a futures contract and buying an option.