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Title: How to Invest in Crude Oil Futures and Options
Author: MK Smith
Article:
Many people believe that the prices of crude oil futures and
unleaded gas futures are too cheap at the current levels for
various reasons but do not know how to invest in energy futures
and options. What is a crude oil futures option? A crude oil
futures option is the right but not the obligation to buy (call)
or sell (put) 1000 barrels of crude oil for a certain price
(strike price) by a certain period of time (expiration date).
The option buyer pays a premium for this right. A hypothetical
example might be buying 1 June $65 crude oil futures call option
for a premium cost of $1000. Keep in mind that premium cost does
not include commissions and any related fees. The premium paid
and the commissions and fees are the maximum risk of capital
loss that an option purchaser might sustain. The person
speculating on this particular crude oil futures call option is
hoping for the price of June crude oil futures to increase
enough for them to sell (offset) the option for a profit anytime
before the option expires. Visit www.tkfutures.com/basics.htm to
learn more about the mechanics call and put option buying.
There are various futures contracts that are closely related to
crude oil futures because they are made from crude oil such as
heating oil futures and unleaded gas futures. An unleaded gas
futures option gives the option buyer the right but not the
obligation to buy (call) or sell (put) 42,000 gallons of
unleaded gas for a certain price (strike) by a certain period of
time (expiration date). A hypothetical example might be buying 1
July $1.80 unleaded gas futures call option for $900. Once
again, the premium cost does not include commissions and fees.
The premium paid and the commissions and fees are the maximum
risk of capital loss that an option purchaser might sustain. The
option speculator is hoping for the price of July unleaded gas
futures to increase enough for them to sell (offset) their
option for a profit anytime before the option expiration date.
Crude oil futures options and unleaded gas futures options
investing are very risky and are not suitable for all investors.
Visit www.tkfutures.com/risk_disclosure.htm to learn more about
those risks.
Why are crude oil futures contract prices quoted in barrels and
heating oil futures and unleaded gas futures contracts are
quoted in gallons? One barrel of crude oil is 42 gallons so the
contracts are actually leveraging the same amount of petroleum
or the products. It is less confusing to have different contract
quotes for the distillates of crude oil and the crude oil itself.
How does an investor open a commodity account that allows crude
oil futures and unleaded gas futures options trading? Visit
www.tkfutures.com/commodity_broker.htm to learn how to choose
the type of trading services that will be needed, check up on a
company's legitimacy and choose a suitable commodity broker.
About the author:
The author of this article has 13 plus years of commodity option
trading experience and wishes to educate investors so they can
make prudent investment decisions based on a deeper knowledge of
the option markets before they risk their hard earned money.
Future option trading is not for everyone and only risk capital
should be used when investing.
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