Make Money with Oil Futures Options

BY
WWW.OPTIONS-TRADING-
EDUCATION.COM
Make Money with
Oil Futures
Options

HTTP://WWW.OPTIONS-TRADING-
EDUCATION.COM/24002/MAKE-MONEY-WITH-OIL-
FUTURES-OPTIONS/
Last week we wrote about how you can
make money trading options.

FUTURES-OPTIONS/
This week we look at a specific niche
that can be very profitable, options on oil
futures.

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First let us look at the difference
between futures and options.
Then we look at how to combine the two
to make money with oil futures options.

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Futures versus
Options

FUTURES-OPTIONS/
Futures are standardized contracts
between two parties to buy or sell a
specified asset of a standardized
quantity and quality for an agreed upon
price set at the time of making the
contract.

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Both buyer and seller are obligated to
satisfy the terms of the contract.

FUTURES-OPTIONS/
On the other hand an options contract
gives the buyer the right to buy or sell an
underlying asset or instrument at a
specified strike price on or before a
specified date. And, the buyer is under
no obligation to do so.

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But, the seller is obligated to fulfill the
terms of the contract if the buyer
decides to execute the same.

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Futures contract traders often enter and
exit trades without remaining in the
contract until expiration.

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The same applies to options trades. A
common way to minimize risk in futures
trading is to purchase options contracts
on futures trades.

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We suggest that it is possible to
minimize risk and make money with oil
futures options in today’s markets.

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Russian, Ukraine,
Crimea and Oil
Futures

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There are a lot of commodities and
stocks for which a trader can buy or sell
futures contacts.

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We are looking at how to make money with
oil futures options because of the volatile
nature of the oil and gas market today due
to the annexation of Crimea by the Russian
Federation, the continued attempts by
Russia to foment unrest in Eastern Ukraine
and the distinct possibility that Russian
natural gas and oil will cease to flow through
Ukrainian pipelines to the European Union.

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Make Money with Oil
Futures Options: a
snapshot of the
market

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As of the morning of April 29, 2014,
CME crude oil futures quotes and
associated options are as follows:

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Sampling of Data from CME Oil Futures and Oil Futures Options
As of April 29, 2014
Delivery Last in $ Highest Strike Price Cost
June 2014 102.02 103 2.05
July 2014 101.24
August 2014 100.30
September 2014 99.31
October 2014 98.35
November 2014 97.44
December 2014 96.64 98 5.45
December 2015 88.72 91 7.83
December 2016 85.00 87 9.17
December 2017 82.99 85 10.23
December 2018 81.62 84 11.16
December 2019 80.89 83 11.92
December 2020 80.71 83 12.44
December 2021 80.36 82.50 12.83
December 2022 80.42 82.50 13.57

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There are three basic factors driving the
oil and gas markets today. One is the
still weak global economic recovery.

FUTURES-OPTIONS/
This is keeping prices down as demand
is lower than before the start of the
second worst recession in seventy-five
years.

FUTURES-OPTIONS/
Two is the development of sustainable
fracking technology which is bringing the
USA back the top rank of oil production,
greatly reducing US oil imports and likely to
make the USA an oil and natural gas
exporter. This technology will eventually be
worldwide and can be expected to increase
production across the board.

FUTURES-OPTIONS/
The third factor is political, social and
military unrest in the Middle East and
now is Ukraine where Russian natural
gas and oil flow to Europe.

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If the Ukraine crisis sets off another Cold
War it could greatly upset the oil
markets and drive prices significantly
higher

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. Looking at the futures for crude oil on
the Comex traders expect prices to fall
over the next several years.

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However, there is a risk factor here as
those selling options are asking for
significant premiums in return for
guaranteeing low prices six, seven and
eight years from now.

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How Can You Make
Money with Oil
Futures Options?

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The beauty of options is that buyers
assume no risk other than the capital
they invest in an options contract.

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And, options buyers can always exit a
contract if it appears to have been a bad
idea, thus limiting their loss.

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On the other hand if things go badly in
Ukraine and a trader gas purchased
options to buy crude oil futures at a low
price the resulting profits could be
extraordinary.

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As always do your own homework and
check out any tips with thorough
fundamental and technical analysis.

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Make Money with Oil Futures Options

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