What was the inspiration behind Trading Commodity Options with Creativity?
Years of seeing traders accept large losses in hopes of a home run trade or taking small profits to eventually be engulfed by a large loss, motivated me to educate market participants on the advantages of options. When discussing speculative trading activity, not long-term investing, traders owe it to themselves to put the work in to truly understand the risks, rewards, and hedging capabilities presented by the commodity options markets. Nobody said it will be easy but opening the door to options trading and the opportunities they present will be worth the extra effort. It’s human nature to favor convenience and simplicity but those are not always the optimal choices. For instance, it is possible to purchase a loaf of bread at a convenience store to save time and effort, but the selection will be dismal, and the price will be high relative to less handy alternatives. Commodity trading is no different.
What skills and Knowledge will readers of Trading Commodity Options with Creativity walk away with?
To be fair, writing and teaching options trading is a nearly impossible task. The subject matter can become dense and convoluted. There are an unlimited number of strategies and each trading scenario might call for a variety of approaches; there is no clear right or wrong answer without the luxury of hindsight. Some educators attempt to over-simplify the practice of options trading while others take the opposite approach of creating overly intimidating material. I hope I can find a happy medium capable of helping traders of all types, sizes, and skill levels. Whether you have traded for decades or have yet to place the first trade, I believe I can offer an alternative perspective on how to use options to alter the landscape of the commodity markets.
The objective of this book is to introduce various options trading strategies, their advantages, and disadvantages and how to calculate risk and reward; it is not intended to be a comprehensive book on commodity trading. However, I have written other titles to meet the needs of most information seekers. Those interested in learning from the ground up should consider A Trader’s First Book on Commodities; taking things a step further, into market analysis and strategy development, Higher Probability Commodity Trading is a great source (in my biased opinion).
Is this book aimed at beginning or experienced traders, well-funded traders, or small traders?
I sincerely believe this book can be enjoyed by traders of all experience levels and account sizes. For instance, the book starts with an explanation of what options are, whey they should be considered, and how traders can use them to speculate or hedge. From there, the premise shifts to simple strategies such as buying outright calls and puts but delves into overly complex option spread strategies and when to use them. Readers are given the tools need to assess the appropriate strategy for their situation.
Is this book for beginning traders or experienced?
I wrote this book intending to create something that can be appreciated and enjoyed by traders of all skill levels. In short, Trading Commodity Options with Creativity starts from ground zero to describe the basic building blocks in options trading, calls and puts, and how to use these simple components to create strategies that fit the personality, experience level, and account size of any trader. Despite the dense content, I believe I have successfully presented complex material in a manner the majority will relish absorbing.
What sets this futures trading book apart from others in the genre?
I am not the first person to write a book on options trading and I won’t be the last, but I am one of the few authors with a focus on commodity options. Most trading literature primarily discusses stock options trading; trust me, the concepts cannot simply migrate between options on futures and options on stocks without modification. This is my second stab at writing a book exclusive to commodity options trading; the first, titled Commodity Options, was published in 2009 by FT Press. That effort was named a “Top 10 Book of 2009” by SFO Magazine and I sincerely believe we have topped it with Trading Commodity Options with Creativity. This book spices up otherwise dull and difficult material with real-world examples and a unique perspective with an emphasis on thinking outside the box.
Despite the fuzzy math, blood, sweat, and tears that come with using complex strategies, I believe traders owe it to themselves to fully understand the relationship between the futures markets and the options written against them. Doing so arms traders with the tools needed to cope with hardships and react to the everchanging market environment. Further, the focus of this book is to outline various options on futures strategies used in speculation, but we must not forget the same strategies can be used by farmers, ranchers, and portfolio managers to hedge price risk. After all, the futures markets were initially created to shift risk from the speculator to the hedger, not the other way around.
How long have you been a commodity broker?
I became a licensed and registered (with the National Futures Association) commodity broker in 2004. In an industry that chews people up and spits them out, I’ve managed to survive the financial crisis, being victimized by the PFGBest fraud and bankruptcy, the US debt rating downgrade, and eventually the COVID-19 shutdown. Although I have seen a lot, I doubt I will ever be able to say I’ve seen it all; that isn’t how markets work.
What is the biggest mistake commodity traders make?
The obvious answer is the overuse of leverage, overzealous position sizing, and simply trading too often. Yet, the lessons learned during the 2020 debacle in the financial and commodity markets influenced my thought process. Instead, I believe the biggest mistake traders can make is to have open-ended risk exposure. There are high-probability strategies that work the majority of the time but fail miserably on rare occasions. Those trading with unlimited risk exposure might go several months or years with positive trading results only to give it all back in a few days or weeks.