How to Buy Dow Jones Futures Options

Futures on the DJIA allow for short-term trading of the popular stock index.

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Futures contracts with values based on the Dow Jones Industrial Average stock index allow traders to make leveraged bets concerning the future of the DJIA. With regular futures trading, the leverage cuts both ways, so picking the wrong direction with a Dow futures trade can turn into a very expensive loser. Options on futures allow traders to set up trades with different risk profiles, changing the costs of a trade and putting a limit on the downside risk.

Step 1

Open an account with a registered commodity futures brokerage firm. Futures brokers and their representatives are required to be registered with the Commodity Futures Trading Commission -- CFTC -- and will also be members of the National Futures Association -- NFA.

Step 2

Download and install one of the trading platforms offered by the futures broker. Most brokers offer a choice of platforms with different features. Discuss the choices with a broker representative based on the type of trading you want to do.

Step 3

Study the trading platform user's manual or call the broker's trading support to learn how to access pricing of the Dow Jones futures and the options trading against those futures. Each type of futures contract has its own account value and pricing. For example, there are Dow futures contracts valued at both five and 10 times the value of the stock index. The options prices for each contract type will be priced to match the specific futures contract.

Step 4

Practice buying Dow futures options using the simulated trading account provided by your broker. All futures brokers include a simulated account log-in when you get a real money account. The simulated account can be used to familiarize yourself with the trading platform and to try out trading strategies. With options, call options generally are purchased to profit from a rising futures price and put options gain in value if the futures price declines.

Step 5

Start live trading Dow futures options once you are comfortable with the trading system and your results using the simulated account. Your live account will use the same software with a different log-in and password. Make sure you always know which account you are currently logged into.