Commodity market trading – For institutional investors, the option is an almost foolproof money-making device.

This is primarily because the size of the institutional portfolio permits multiple transactions, so that it becomes almost immaterial whether the option is exercised or not. Suppose you are managing a large fund containing several thousand shares of a stock bought at 40. To keep things simple, we’ll say that this is also the current market price. You sell a call option on 100 shares at 40, dated six months and 10 days ahead. This is the point at which long-term capital-gains tax advantages apply and is, therefore, the most frequently used time period for options. Your premium on this option is $700.

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[tags]Commodity Market Trading[/tags]