Buying (Going Long) Nickel Futures to Profit from a Rise in Nickel Prices

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Buying (Going Long) Nickel Futures to Profit from a Rise in Nickel Prices

If you are bullish on nickel, you can profit from a rise in nickel price by taking up a long position in the nickel futures market. You can do so by buying (going long) one or more nickel futures contracts at a futures exchange.

Example: Long Nickel Futures Trade

You decide to go long one near-month LME Nickel Futures contract at the price of USD 10,100 per tonne. Since each LME Nickel Futures contract represents 6 tonnes of nickel, the value of the futures contract is USD 60,600. However, instead of paying the full value of the contract, you will only be required to deposit an initial margin of USD 14,400 to open the long futures position.

Assuming that a week later, the price of nickel rises and correspondingly, the price of nickel futures jumps to USD 11,110 per tonne. Each contract is now worth USD 66,660. So by selling your futures contract now, you can exit your long position in nickel futures with a profit of USD 6,060.

Long Nickel Futures Strategy: Buy LOW, Sell HIGH
BUY 6 tonnes of nickel at USD 10,100/ton USD 60,600
SELL 6 tonnes of nickel at USD 11,110/ton USD 66,660
Profit USD 6,060
Investment (Initial Margin) USD 14,400
Return on Investment 42%

Margin Requirements & Leverage

In the examples shown above, although nickel prices have moved by only 10%, the ROI generated is 42%. This leverage is made possible by the relatively low margin (approximately 24%) required to control a large amount of nickel represented by each contract.

Leverage is a double edged weapon. The above examples only depict positive scenarios whereby the market is favorable towards you. If the market turn against you, you will be required to top up your account to meet the margin requirements in order for your futures position to remain open.

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Buying (Going Long) Nickel Futures to Profit from a Rise in Nickel Prices

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Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

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If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

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If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

FUTURES CONTRACT SPECIFICATION

LME NICKEL

Futures contracts are an agreement to buy or sell a fixed amount of metal for delivery on a fixed future date at a price agreed today.

Contract code NI
Underlying metal Nickel of 99.80% purity (minimum) conforming to B39-79 (2008)
Lot size 6 tonnes
Prompt dates Daily: out to 3 months
Weekly: 3 out to 6 months
Monthly: 7 out to 63 months
Price quotation US dollars per tonne
Clearable currencies US dollar, Japanese yen, sterling, euro
Minimum price fluctuation (tick size) per tonne Outright Carries
Ring $5.00 $0.01
LMEselect $5.00 $0.01
Inter-office $0.01 $0.01
Last trading day Up until the close of the first Ring the day before the prompt date
Settlement type Physical
Trading venues Ring, LMEselect, inter-office telephone

LME Nickel contract specifications

This is a summary of the contract specifications. For full contract specification details, please refer to the LME Rulebook and for other information, please refer to our disclaimer page.

Note that all contracts are subject to the LME’s rules and regulations and LME Clear span margining.

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