Commodity Derivatives: A Guide for Future Practitioners describes the origins and uses of these important markets. Commodities are often used as inputs in the production of other products, and commodity prices are notoriously volatile. Derivatives include forwards, futures, options, and swaps; all are types of contracts that allow buyers and sellers to establish the price at one time and exchange the commodity at another.

These contracts can be used to establish a price now for a purchase or sale that will occur later, or establish a price later for a purchase or sale now. This book provides detailed examples for using derivatives to manage prices by hedging, using futures, options, and swaps. It also presents strategies for using derivatives to speculate on price levels, relationships, volatility, and the passage of time. Finally, because the relationship between a commodity price and a derivative price is not constant, this book examines the impact of basis behaviour on hedging results, and shows how the basis can be bought and sold like a commodity.

The material in this book is based on the author’s 30-year career in commodity derivatives, and is essential reading for students planning careers as commodity merchandisers, traders, and related industry positions. Not only does it provide them with the necessary theoretical background, it also covers the practical applications that employers expect new hires to understand. Examples are coordinated across chapters using consistent prices and formats, and industry terminology is used so students can become familiar with standard terms and concepts. This book is organized into 18 chapters, corresponding to approximately one chapter per week for courses on the semester system.

chapter 1|6 pages


chapter 2|13 pages

Trading Futures and Options

chapter 5|21 pages

Market Regulation

chapter 6|15 pages

Hedging with Futures

chapter 7|15 pages

Hedging and the Basis

chapter 8|14 pages

Hedging Enhancements

chapter 9|14 pages

Profit Margin Hedging and Inverse Hedging

chapter 10|10 pages

Hedging and Basis Trading

chapter 11|12 pages

Basis Trading and Rolling a Hedge

chapter 12|12 pages

Speculating with Futures

chapter 13|11 pages

Introduction to Options on Futures

chapter 14|14 pages

Option Pricing

chapter 15|22 pages

Profit Tables and Profit Diagrams

chapter 16|24 pages

Hedging with Options

chapter 17|21 pages

Speculating with Options

chapter 18|5 pages

Commodity Swaps