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Buying a Call

  • The buyer bears the right, but not the obligation, to buy futures at a specific price (strike price) after paying a premium to the seller.
  • Allows the buyer of a physical commodity to establish a ceiling price for product he intends to buy later.
  • Protects against higher futures prices.
  • Allows for price flexibility – After buying the call, if markets should fall prior to buying the physical commodity, the owner of the call receives the lower market price for the product he is buying. After buying the call, if markets should rise, the owner of the call is shielded from the higher futures prices by the gains in the call option.
  • No margin requirement or further costs. Limited Risk (amount of premium paid plus brokerage fees); Unlimited Reward (futures markets can go as high as the buyer is willing to run prices).