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10 Most Frequently Asked Questions

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Broker Assisted Futures and Options Account FAQs

 

The No Nonsense Guide to Buying and Selling Options

Learn the most effective strategies for buying and selling options on futures contracts. Also learn producer and consumer hedging strategies.

 

How does a broker assisted account work?

High net worth investors understand the value of having access to prudent and personalized investment advice. A broker will work with you to identify your risk tolerances, portfolio objectives and your comfort level with certain strategies and markets. Once these are established, Mr. Smith will suggest individual trades and strategies for your final approval. As soon as a specific trade has been agreed upon, he will place the trade on your behalf. No trades will be placed without your knowledge and approval.

 

How are the various trades and trading strategies chosen?

Mr. Smith believes in a disciplined trading plan that allows for enough flexibility to modify strategies as market conditions change. He uses a combination of fundamental, technical and seasonal analysis to choose individual trades. Changing market conditions and the risk tolerance of the individual client dictate which strategies will be implemented in a typical portfolio.

During periods of high implied volatility the primary strategies utilized in a broker assisted portfolio are selling deep-out-of-the-money options, short strangles or credit spreads. During periods of relatively low implied volatility buying at or near-the-money options are the primary strategies used.

 

What trades might a typical broker assisted portfolio contain?

Mr. Smith believes in utilizing a low margin to equity ratio for any given investment idea within each individual portfolio. He also believes that each trading idea should be as non-correlated as possible to the other trades in the account. A typical portfolio might be diversified between 5 different commodity sectors and as many as 10 different trading ideas within those sectors. The different commodity markets most often traded include: crude oil, heating oil, unleaded gas, natural gas, gold, silver, copper, soybeans, corn, wheat, coffee, cocoa, cotton, sugar, orange juice, live cattle, feeder cattle and lean hogs. Read The No Nonsense Guide to Buying and Selling Options to learn more.

 

How can futures and options compliment my traditional stock, bond and real estate portfolio?

Alternative investments like options on futures contracts can be used to diversify and reduce the overall volatility in a traditional portfolio because they exhibit a low correlation to stocks, bonds and real estate.

Futures and options investments also have tax advantages. Any gains from futures and options trades are taxed as 60% long term and 40% short term regardless of the time frame those investments were held.

 

 

 

 

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The information presented in this commodity futures and options site is not investment advice and is for informational purposes only. No guarantees are being made to its accuracy or completeness. This information can be considered a solicitation to enter into a derivatives trade. Investing in futures and options carries substantial risk of loss and is not suitable for some people. Past or simulated performance is not indicative to future results.