Commodity Trading Has Changed Dramatically From Years Past

In this digital age, there are many products and services that are changing. There may be no bigger change than what we see in commodity trading. CME Group Managing Director of Commodity Research and Product Development Dave Lehman shares more about a very useful tool for producers.

Lehman: "Options — what we are finding — these are insurance tools. These are the right to buy or sell but not the obligation. They are very similar to what farmers ro producers are use to in terms of crop insurance or even insurance on their equipment or buildings. You pay a perineum and often that is seen as a cost that some would like to avoid. So if you buy or sell futures, you don't pay a perineum you just post margin but then you are obligated at the price you buy or sell futures at. When you buy an option at a strike post you buy a call or buy a put to protect you from the downside. You're buying the right to sell futures at the strike price but not the obligation. So if the price moves in your favor, you can take advantage of the higher price without being locked in as you would be from futures."

Lehman says you can track the implied volatility though market options

Lehman: "Looking at option prices or premiums, you plug those into the option pricing model and those will give you a measure of volatility that is implied from option premiums."