As the price of oil extraction increases plus the accessible resources deplete, plenty of people sense crude oil futures and unleaded gas futures values are undervalued but lack the understanding of the best way to get energy futures and options.
What is a crude oil futures option? A crude oil futures option is the option but not the requirement to get (call) or sell (put) 1000 barrels of crude oil for a set value (strike price) by a particular time period (expiration date). The option purchaser pays a premium due to this right. For example, a broker might pay a premium cost of $1000 on 1 June crude oil future call option. Commissions and fees still must be included because the premium expenditure doesn't take them into account. Capital loss risks are limited to your original premium paid plus the added commissions or expenses. In this instance, if the purchase price of June crude oil futures increases satisfactorily, the speculator would be ready to sell the option for return ahead of expiration.
Unleaded gas futures as well as heating oil futures are made from crude oil and so are highly associated to crude oil futures. An unleaded gas futures option offers the option purchaser the option but not the obligation to buy (call) or sell (put) 42,000 gallons of unleaded gas for a specified price (strike) by a specific time frame (expiration date). A hypothetical example might be ordering 1 July $1.80 unleaded gas futures call option for $900. Again, the premium cost doesn't consist of commissions and charges. The premium paid as well as the commissions and charges are the most risk of capital loss that an option buyer might sustain. The idea in this case is that if July unleaded gas futures improve, the speculator would likely sell their option for gain prior to expiration.
Unleaded gas futures and crude oil futures options investment are very dangerous and are usually not suitable for all investors. It is possible to sustain major deficits and use up all funds invested with buying options.
Why are crude oil futures contract values quoted in barrels and unleaded hgas futures contracts and heating oil futures are quoted in gallons? One barrel of crude oil is 42 gallons therefore the agreements are in actual fact leveraging the exact same amount of petroleum or the products. It is not as baffling to have other contract quotes for the distillates of crude oil and also the crude oil itself.
Ebele Kemery has 13 plus years of commodity option trading experience and wishes to inform investors in order that they may make wise investment options according to a deeper understanding of the option markets before they risk their hard earned money. Future option trading seriously is not for everybody and only risk capital should be used when investing.
Ebele Kemery a Portfolio manager and associated with JPMorgan Investment Management. Ms. Kemery is responsible for formulating our view and investment decisions for major energy commodities including, but not limited to: crude oil, gasoline, heating oil and natural gas.
Ms. Ebele Kemery is a Commodities Leader with a track record of consistently profitable trading efforts, and expanded business through understanding of client needs and developing customized solutions that leverage a wide variety of techniques and market intricacies.
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