material has been prepared by a sales or trading employee or agent of Van Commodities, Inc. and is, or is in the nature of,
a solicitation. This material is not a research report prepared by Van Commodities, Inc. Research Department. By accepting
this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading
decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.
DISTRIBUTION IN SOME JURISDICTIONS
MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT
AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS
ARE PROHIBITED IN YOU JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED
The risk of loss in trading futures and/or options is substantial and each investor and or trader
must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical
tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical
services and other sources that Van Commodities, Inc. believes are reliable. We do not guarantee that such information is
accurate or judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we
give will result in profitable trades.
RISK DISCLOSURE STATEMENT FOR FUTURES
This statement is furnished to you because Rule 1.55 of the Commodity Futures Trading Commission requires it.
The risk of loss in trading commodity futures contracts can be substantial. You should, therefore,
carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should
be aware of the following points:
1. You may sustain a total loss of the funds that
you deposit with your broker to establish or maintain a position in the commodity futures market, and you may incur losses
beyond these amounts. If the market moves against your position, you may be called upon by your broker to deposit a substantial
amount of additional margins funds, on short notice, in order to maintain your position. If you do not provide the required
funds within the time required by your broker, your position may be liquidated at a loss, and you will be liable for any resulting
deficit in your account.
2. Under certain market conditions, you may find it difficult or impossible to liquidate a
position. This can occur, for example, when the market reaches a daily price fluctuation limit ("limit move").
3. Placing contingent orders, such as "stop-loss" or "stop-limit" orders, will
not necessarily limit your losses to the intended amounts, since the market conditions on the exchange where the order is
placed may make it impossible to execute such orders.
4. All futures positions involve risk, and a "spread"
position may not be less risky than an outright "long" or "short" position.
5. The high degree of leverage (gearing) that is often obtainable in futures trading because of the small margin requirements
can work against you as well as for you. Leverage (gearing) can lead to large losses as well as gains.
6. You should consult your broker concerning the nature of the protections available to safeguard
funds or property deposited for your account.
ALL OF THE POINTS NOTED ABOVE APPLY TO ALL FUTURES
TRADING WHETHER FOREIGN OR DOMESTIC. IN ADDITION, IF YOU ARE CONTEMPLATING TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS, YOU
SHOULD BE AWARE OF THE FOLLOWING ADDITIONAL RISKS:
7. Foreign futures transactions involve executing
and clearing trades on a foreign exchange. This is the case even if the foreign exchange is formally "linked" to
a domestic exchange, whereby a trade executed on one exchange liquidates or establishes a position on the other exchange.
No domestic organization regulates the activities of a foreign exchange, including the execution, delivery, and clearing of
transactions on such an exchange, and no domestic regulator has the power to compel enforcement of the rules of the foreign
exchange or the laws of the foreign country. Moreover, such laws or regulations will vary depending on the foreign country
in which the transaction occurs. For these reasons, customers who trade on foreign exchanges may not be afforded certain of
the protections which apply to domestic transactions, including the right to use domestic alternative dispute resolution procedures.
In particular, funds received from customers to margin foreign futures transactions may not be provided the same protections
as funds received to margin futures transactions on domestic exchanges. Before you trade, you should familiarize yourself
with the foreign rules which will apply to your particular transaction.
8. Finally, you should
be aware that the price of any foreign futures or option contract and, therefore, the potential profit and loss results there
from, may be affected by any fluctuation in the foreign exchange rate between the time the order is placed and the foreign
futures contract is liquidated or the foreign option contract is liquidated or exercised.
THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER ASPECTS OF THE COMMODITY MARKETS.
RISK DISCLOSURE STATEMENT FOR OPTIONS
This statement is furnished to you because Rule 33.7 of the Commodity Futures Trading Commission requires it.
BECAUSE OF THE VOLATILE NATURE OF THE COMMODITIES MARKETS, THE PURCHASE AND GRANTING OF COMMODITY
OPTIONS INVOLVE A HIGH DEGREE OF RISK. COMMODITY OPTION TRANSACTIONS ARE NOT SUITABLE FOR MANY MEMBERS OF THE PUBLIC. SUCH
TRANSACTIONS SHOULD BE ENTERED INTO ONLY BY PERSONS WHO HAVE READ AND UNDERSTOOD THIS DISCLOSURE STATEMENT AND WHO UNDERSTAND
THE NATURE AND EXTENT OF THEIR RIGHTS AND OBLIGATIONS AND OF THE RISKS INVOLVED IN THE OPTION TRANSACTIONS COVERED BY THIS
BOTH THE PURCHASER AND THE GRANTOR SHOULD KNOW WHETHER THE PARTICULAR OPTION IN WHICH THEY
CONTEMPLATE TRADING IS AN OPTION WHICH, IF EXERCISED, RESULTS IN THE ESTABLISHMENT OF A FUTURES CONTRACT (AN "OPTION
ON A FUTURES CONTRACT") OR RESULTS IN THE MAKING OR TAKING OF DELIVERY OF THE ACTUAL COMMODITY UNDERYLING THE OPTION
(AN "OPTION ON A PHYSICAL COMMODITY"). BOTH THE PURCHASER AND THE GRANTOR OF AN OPTION ON A PHYSICAL COMMODITY SHOULD BE AWARE THAT, IN CERTAIN CASES, THE
DELIVERY OF THE ACTUAL COMMODITY UNDERLYING THE OPTION MAY NOT BE REQUIRED AND THAT, IF THE OPTION IS EXERCISED, THE OBLIGATIONS
OF THE PURCHASER AND GRANTOR WILL BE SETTLED IN CASH.
BOTH THE PURCHASER AND THE GRANTOR SHOULD KNOW
WHETHER THE PARTICULAR OPTION IN WHICH THEY CONTEMPLATE TRADING IS SUBECT TO A "STOCK-STYLE" OR "FUTURES-STYLE"
SYSTEM OF MARGINING. UNDER A STOCK-STYLE MARGINING SYSTEM, A PURCHASER IS REQUIRED TO PAY THE FULL PURCHASE PRICE OF THE OPTION
AT THE INITIATION OF THE TRANSACTION. THE PURCHASER HAS NO FURTHER OBLIGATION ON THE OPTION POSITION. UNDER A FUTURES-STYLE
MARGINING SYSTEM, THE PURCHASER DEPOSITS INITIAL MARGIN AND MAY BE REQUIRED TO DEPOSIT ADDITIONAL MARGIN IF THE MARKET MOVES
AGAINST THE OPTION POSITION. THE PURCHASER'S TOTAL SETTLEMENT VARIATION MARGIN OBLIGATION OVER THE LIFE OF THE OPTION, HOWEVER,
WILL NOT EXCEED THE ORIGINAL OPTION PREMIUM. IF THE PURCHASER OR GRANTOR DOES NOT UNDERSTAND HOW OPTIONS ARE MARGINED UNDER
A STOCK-STYLE OF FUTURES-STYLE MARGINING SYSTEM, HE OR SHE SHOULD REQUEST AN EXPLANATION FROM THE FUTURES COMMISSION MERCHANT
("FCM") OR INTRODUCING BROKER ("IB").
A PERSON SHOULD NOT PURCHASE ANY COMMODITY OPTION
UNLESS HE OR SHE IS ABLE TO SUSTAIN A TOTAL LOSS OF THE PREMIUM AND TRANSACTION COSTS OF PURCHASING THE OPTION. A PERSON SHOULD
NOT GRANT ANY COMMODITY OPTION UNLESS HE OR SHE IS ABLE TO MEET ADDITIONAL CALLS FOR MARGIN WHEN THE MARKET MOVES AGAINST
HIS OR HER POSITION AND, IN SUCH CIRCUMSTANCES, TO SUSTAIN A VERY LARGE FINANCIAL LOSS.
A PERSON WHO PURCHASES AN OPTION SUBJECT TO STOCK-STYLE MARGINING SHOULD BE AWARE THAT, IN ORDER TO REALIZE ANY VALUE
FROM THE OPTION, IT WILL BE NECESSARY EITHER TO OFFSET THE OPTION POSITION OR TO EXERCISE THE OPTION. OPTIONS SUBJECT TO FUTURES-STYLE
MARGINING ARE MARKED TO MARKET, AND GAINS AND LOSSES ARE PAID AND COLLECTED DAILY. IF AN OPTION PURCHASER DOES NOT UNDERSTAND
HOW TO OFFSET OR EXERCISE AN OPTION, THE PURCHASER SHOULD REQUEST AN EXPLANATION FROM THE FCM OR IB. CUSTOMERS SHOULD BE AWARE
THAT IN A NUMBER OF CIRCUMSTANCES, SOME OF WHICH WILL BE DESCRIBED IN THIS DISCLOSURE STATEMENT, IT MAY BE DIFFICULT OR IMPOSSIBLE
TO OFFSET AN EXISTING OPTION POSITION ON AN EXCHANGE.
THE GRANTOR OF AN OPTION SHOULD BE AWARE THAT,
IN MOST CASES, A COMMODITY OPTION MAY BE EXERCISED AT ANY TIME FROM THE TIME IT IS GRANTED UNTIL IT EXPIRES. THE PURCHASER
OF AN OPTION SHOULD BE AWARE THAT SOME OPTION CONTRACTS MAY PROVIDE ONLY A LIMITED PERIOD OF TIME FOR EXERCISE OF THE OPTION.
THE PURCHASER OF A PUT OR CALL SUBJECT TO STOCK-STYLE OR FUTURES-STYLE MARGINING IS SUBJECT TO THE
RISK OF LOSING THE ENTIRE PURCHASE PRICE OF THE OPTION-THAT IS, THE PREMIUM CHARGED FOR THE OPTION PLUS ALL TRANSACTION COSTS.
THE COMMODITY FUTURES TRADING COMMISSION REQUIRES THAT ALL CUSTOMERS RECEIVE AND ACKNOWLEDGE RECEIPT
OF A COPY OF THIS DISCLOSURE STATEMENT BUT DOES NOT INTEND THIS STATEMENT AS A RECOMMENDATION OR ENDORSEMENT OF EXCHANGE-TRADED
1. Some of the risks of option trading.
Specific market movements
of the underlying future or underlying physical commodity cannot be predicted accurately.The grantor of a call option who does not have a long position in the underlying futures contract
or underlying physical commodity is subject to risk of loss should the price of the underlying futures contract or underlying
physical commodity be higher than the strike price upon exercise or expiration of the option by an amount greater than the
premium received from granting the call option.
The grantor of a call option who has a long position
in the underlying futures contract or underlying physical commodity is subject to the full risk of a decline in price of the underlying position reduced by the premium received
for granting the call. In exchange for
the premium received for granting a call option, the option grantor gives up all of the potential gain resulting from an increase
in the price of the underlying futures
contract or underlying physical commodity above the option strike price upon exercise or expiration of the option.
The grantor of a put option who does not have a short position in the underlying futures contract
or underlying physical commodity (e.g.,
commitment to sell the physical) is subject to risk of loss should the price of the underlying futures contract or underlying
physical commodity decrease below
the strike price upon exercise or expiration of the option by an amount in excess of the premium received for granting the put option.
The grantor of a put option on a futures contract who has a short position in the underlying futures contract is subject
to the full risk of a rise in the price of the underlying position reduced by the premium received for granting the put. In
exchange for the premium received for granting a put option on a futures contract, the option grantor gives up all of the
potential gain resulting from a decrease in the price of the underlying futures contract below the option strike price upon
exercise or expiration of the option.
The grantor of a put option on a physical commodity
who has a short position (e.g., commitment to sell the physical) is subject to the full risk of rise in the price of the physical
commodity which must be obtained to fulfill the commitment reduced by the premium received for granting the put. In exchange
for the premium, the grantor of a put option on a physical commodity gives up all the potential gain which would have resulted
from a decrease in the price of the commodity below the option strike price upon exercise or expiration of the option.
2. Description of commodity options.
Prior to entering
into any transaction involving a commodity option, an individual should thoroughly understand the nature and type of option
involved and the underlying futures contract or physical commodity. The futures commission merchant or introducing broker
is required to provide, and the individual contemplating an option transaction should obtain:
(i) An identification of the futures contract or physical commodity underlying the option
and which may be purchased or sold upon exercise of the option or, if applicable, whether exercise of the option will be settled
(ii) The procedure for exercise of the option
contract, including the expiration date and latest time on that date for exercise. (The latest time on an expiration date
when an option may be exercised may vary; therefore, option market participants should ascertain from their futures commission
merchant or their introducing broker the latest time the firm accepts exercise instructions with respect to a particular option.);
(iii) A description of the purchase price of the option including the premium, commissions,
costs, fees and other charges.
(Since commissions and other charges
may vary widely among futures commission merchants and among introducing brokers, option customers may find it advisable to
consult more than one firm when opening an option account.);
A description of all costs in addition to the purchase price which may be incurred if the commodity option is exercised, including
the amount of commissions (whether termed sales commissions or otherwise), storage, interest, and all similar fees and charges
which may be incurred;
(v) An explanation and understanding of the option
margining system;(vi) A clear explanation and understanding of
any clauses in the option contract and of any items included in the option contract explicitly or by reference which might
affect the customer's obligations under the contract. This would include any policy of the futures commission merchant or
the introducing broker or rule of the exchange on which the option is traded that might affect the customer's ability to fulfill
the option contract or to offset the option position in a closing purchase or closing sale transaction (for example, due to
unforeseen circumstances that require suspension or termination of trading); and
(vii) If applicable, a description of the effect upon the value of the option position that could result from limit
moves in the underlying futures contract.
3. The mechanics of option trading.
Before entering into any exchange-traded option transaction, an individual should obtain a description
of how commodity options are traded.
Option customers should clearly understand that
there is no guarantee that option positions may be offset by either a closing purchase or closing sale transaction on an exchange.
In this circumstance, option grantors could be subject to the full risk of their positions until the option position expires,
and the purchaser of a profitable option might have to exercise the option to realize a profit.
For an option on a futures contract, an individual
should clearly understand the relationship between exchange rules governing option transactions and exchange rules governing
the underlying futures contract. For example, an individual should understand what action, if any, the exchange will take
in the option market if trading in the underlying futures market is restricted or the futures prices have made a "limit
The individual should understand that the option may not be subject to daily price fluctuation
limits while the underlying futures may have such limits, and, as a result, normal pricing relationships between options and
the underlying future may not exist when the future is trading at its price limit. Also, underlying futures positions resulting from exercise of options may
not be capable of being offset if
the underlying future is at a price limit.
4. Margin requirements.
An individual should know and understand whether the option he or she is contemplating trading is subject to a stock-style
or futures-style system of margining. Stock-style margining requires the purchaser to pay the full option premium at the time
of purchase. The purchaser has no further financial obligations, and the risk of loss is limited to the purchase price and
transaction costs. Futures-style margining requires the purchaser to pay initial margin only at the time of purchase. The
option position is marked to market, and gains and losses are collected and paid daily. The purchaser's risk of loss is limited
to the initial option premium and
An individual granting options under either a stock-style or futures-style system of margining
should understand that he or she may be required to pay additional margin in the case of adverse market movements.
5. Profit potential of an option position.
An option customer
should carefully calculate the price which the underlying futures contract or underlying physical commodity would have to
reach for the option position to become profitable. Under a stock-style margining system, this price would include the amount
by which the underlying futures contract or underlying physical commodity would have to rise above or fall below the strike
price to cover the sum of the premium and all other costs incurred in entering into and exercising or closing (offsetting)
the commodity option position. Under a future-style margining system, option positions would be marked to market, and gains
and losses would be paid and collected daily, and an option position would become profitable once the variation margin collected
exceeded the cost of entering the contract position.
Also, an option customer should be aware of the
risk that the futures price prevailing at the opening of the next trading day may be substantially different from the futures
price which prevailed when the option was exercised. Similarly, for options on physicals that are cash settled, the physicals
price prevailing at the time the option is exercised may differ substantially from the cash settlement price that is determined
at a later time. Thus, if a customer does not cover the position against the possibility of underlying commodity price change,
the realized price upon option exercise may differ substantially from that which existed at the time of exercise.
6. Deep-out-of-the-money options.
A person contemplating
purchasing a deep-out-of-the-money option (that is, an option with a strike price significantly above, in the case of a call,
or significantly below, in the case of a put, the current price of the underlying futures contract or underlying physical
commodity) should be aware that the chance of such an option becoming profitable is ordinarily remote.
On the other hand, a potential grantor of a deep-out-of-the-money option should be aware that such
options normally provide small premiums while exposing the grantor to all of the potential losses described in section (1)
of this disclosure statement.
7. Glossary of terms.
(i) Contract market - Any board of trade (exchange)
located in the United States which has been designated by the Commodity Futures Trading Commission to list a futures contract
or commodity option for trading.
(ii) Exchange-traded option; put option; call option - The options discussed in this disclosure
statement are limited to those which may be traded on a contract market. These options (subject to certain exceptions) give
an option purchaser the right to buy in the case of a call option, or to sell in the case of a put option, a futures contract
or the physical commodity underlying the option at the stated strike price prior to the expiration date of the option. Each
exchange-traded option is distinguished by the underlying futures contract or underlying physical commodity, strike price,
expiration date, and whether the option is a put or call.
(iii) Underlying futures contract - The futures
contract which may be purchased or sold upon the exercise of an option on a futures contract.
(iv) Underlying physical commodity - The commodity of a specific grade (quality) and quantity which may be purchased
or sold upon the exercise of an option on a physical commodity.
(v) Class of options
- A put or call covering the same underlying futures contract or underlying physical commodity.(vi) Series of options - Options of the same class having the same strike price and expiration
(vii) Exercise price - See strike price.
date - The last day when an option may be exercised.
(ix) Premium - The amount agreed upon between
the purchaser and seller for the purchase or sale of a commodity option.
(x) Strike price -
The price at which a person may purchase or sell the underlying futures contract or underlying physical commodity upon exercise
of a commodity option. This term has the same meaning as the term "exercise price".(xi) Short option position - See opening sale transaction.
(xii) Long option position - See opening purchase transaction.
(xiii) Types of options
A. Opening purchase transaction - A transaction in which an individual purchases an option
and thereby obtains along option position.
B. Opening sale transaction - A transaction in
which an individual grants an option and thereby obtains a short option position.
C. Closing purchase
transaction - A transaction in which an individual with a short option position liquidates the position. This is accomplished
by a closing purchase transaction for an option of the same series as the option previously granted. Such a transaction may
be referred to as an offset transaction.
D. Closing sale transaction - A transaction in
which an individual with a long option position liquidates the position. This is accomplished by a closing sale transaction
for an option of the same series as the option previously purchased. Such a transaction may be referred to as an offset transaction.
(xiv) Purchase price - The total actual cost paid or to be paid, directly or indirectly, by a person
to acquire a commodity option. This price includes all commissions and other fees, in addition to the option premium.
(xv) Grantor, writer, seller - An individual who sells an option. Such a person is said to have a
(xvi) Purchaser - An individual who buys an option. Such a person is said to have a long position.
ATTENTION NON-U.S. RESIDENTS
services provided by Van Commodities, Inc. may not be available in all jurisdictions. It is possible that the country in which
you are a resident prohibits us from opening and maintaining an account for you. If in doubt, please contact one of our commodity