About the Author
J. Steven Tucker
J. Steven Tucker is a Certified Public Accountant. He has had his own CPA practice in Winston Salem NC since 1987. His areas of practice include financial planning as well as tax planning. Also, for several years now, he has been trading commodities.
You may be asking, "What's the advantage in learning to trade commodities? There is a lot to learn as well as risk to manage. Is the profit potential worthwhile to deal with learning to trade and managing the risk?"
In my opinion, the answer to that question is a resounding "Yes! It is worthwhile to learn to trade commodity futures contracts and or options." The profit potential in trading in commodities can be tremendous.
But the best part is that there is a tremendous profit potential even by limiting the risk. The risk can be minimized by buying options on a futures contract rather than a futures contract itself where there is an unlimited risk. The risk on an option contract is limited to the premium, that is, price of the option. Even if the option expires worthless, the premium is the most that you can lose.
What's really exciting is that by buying an option that costs a few hundred dollars, it is possible to make a profit of even hundreds or even thousands of dollars profits.
Here's an example of where something like that happened. On August 7, 2006, just last month, a September 2.0 Unleaded Gas put was selling for $340.00. Including broker's commission, one could have purchased this option for around $400. On Thursday, August 10, 2006, Unleaded Gas prices plunged and by the end of trading that day, this very same put option had a value of $3100.00. Un believable. Not only that, but Unleaded Gas prices continued to plunge for the remainder of the month of August. By the end of August, this option was worth
about $9100.00.
Wow! The profit on that option would have been very nice. Unfortunately, I missed out on this trade. On August 7, when the option was selling so cheap, it really looked like a long shot chance that this option would ever be profitable. At the time it was also a deep out of the money option.
Also, trades with this kind of profit are fairly rare. But, what is more common are trades where one can make a few hundred dollars profit. My sugar trade which I describe on mylearn2trade.com site is one example of a far more typical trade.
Still, a profit of a few hundred dollars here and there isn't bad. I'm, of course, still hoping to find that grand slam trade like the Unleaded Gas put. Stay tuned as a chronicle my progress on this blog.
Published by J. Steven Tucker on September 11, 2006 02:10 PM
