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Light Sweet Crude Oil Futures
Crude oil futures are the world's most actively traded commodity, and the NYMEX Division
light, sweet crude oil futures contract is the world's most liquid forum
for crude oil future trading, as well as the world's largest-volume
futures contract trading on a physical commodity. Additional risk management and trading
opportunities are offered through options on the crude oil future contract;
crack spread options on the pricing differential of heating oil future
contracts vs. crude oil future contracts or unleaded
gasoline futures contracts vs. crude oil futures. The NYMEX crude oil future
contract may be the most important energy future contract in the world.
Crude Oil Futures and Options Quick Facts
1,000 barrel contract
one cent move equals $10
trades every month
Crude oil futures symbol (CL)
Here is the brochure from the CME Group/NYMEX for WTI Crude
oil futures and options.
Geopolitical concerns in the Middle East can cause extreme
volatility in the crude oil futures and options markets as well as
the distillates such as unleaded gasoline and heating oil. Tensions
with Iran are especially important to energy traders because Iran's daily crude oil production
is estimated to be around 4 million barrels. They also have the potential to hinder or block the Straits of Hormuz
with their navy which can cause major shipping delays. Approximately 20% of
the world's oil passes through the straits making geopolitical
tensions with Iran a critical factor in crude oil futures prices.
The crude oil futures contract trades in units of 1,000 barrels, and the delivery point is
Cushing, Oklahoma, which is also accessible to the international spot markets
via pipelines. The crude oil future contract provides for delivery of several grades of
domestic and internationally traded foreign crude oils, and serves the diverse
needs of the physical crude oil market.
During the September 11 terrorist attacks the NYMEX was destroyed but within
crude oil futures and crude oil options markets were trading
again. This is a testament to the strength and viability of the energy future
markets and the commodity exchanges in the United States of America.
The Crude Oil Futures
Contracts-Crude Oil Pricing
New York Mercantile Exchange Middle East crude oil future contract trades
with prices quoted in dollars and cents per barrel ($00.00/bbl) and a contract
unit of 1,000 barrels. The max/min price fluctuation rules are consistent with
the Exchange's light, sweet crude oil future contract as are settlement
After the last day of regular trading, final settlement of the crude oil futures
contract is based on cash settlement against the cumulative monthly average of
the index over the course of the contract month. The calculation of the final crude oil futures
settlement price is completed on the final business date of the contract month
(e.g. October 30 for the October 1998 contract).
Are you a crude
oil hedger? If so,
click here to learn more.
Crude Oil Options on Futures Contracts Explained
A crude oil call option gives the purchaser the
right but not the obligation to purchase the underlying futures
contract for a specific time period and a specific price (strike
price). Let's say that you wanted to purchase a February crude oil
$50 call option and pay a premium of $1,900.
This means that you bought the right but not the obligation to buy
1,000 barrels of February crude oil for $50 per barrel. Of course,
very few options are bought for the purpose of taking delivery but
that is one potential outcome. Chances are that you either bought
the crude oil option to hedge your price risk in the physical crude
oil market (maybe you are a producer and own an oil well or you are
a consumer and own a refinery) or you are speculating that crude oil
prices will go higher in an attempt to make a profit.
A crude oil put option gives the purchaser the
right but not the obligation to sell the underlying futures contract
for a specific time period and a specific price. Let's say that you
wanted to buy a February crude oil $40 put option and pay a premium
This means that you have the right but not the obligation to sell
1,000 barrels of February crude oil at $40 per barrel.
What is the delta factor?
The delta factor of an option represents the estimated percentage of
change an option will receive based on the movements in the
underlying futures contract.
Let's assume the February crude oil $50 call option above has a 30%
delta factor. This means that if the underlying futures contract
were to rally by $1,000, then the call option would accrue by
approximately $300 or 30% of $1,000 in the crude oil futures
What is theta?
Options are wasting assets which means that they lose value as time
passes. The theta of an option is the measure of time decay.
Let's assume that you bought a February crude oil $50 call option
with 60 days left until expiration. Let's also assume that the crude
oil futures prices have moved very little over the last month and
are exactly the same price 30 days later. Your option will have lost
30 days worth of time and therefore will be worth less today that it
was when it had 60 days left until expiration.
Vega is a measure of the implied volatility of
an option contract as it relates to its underlying futures contract.
For instance, if the underlying futures contract is extremely
volatile then the implied volatility of the options of that futures
contract will be affected.
In a high implied volatility environment option
premiums tend to expand. Conversely, in a low implied volatility
environment the option premiums tend to decrease.
*Contract information changes from time to time. Please
click here to see the most recent
contract specifications and
click here for the most recent trading hours.
Light, Sweet Crude Oil Future
Futures: 1,000 U.S. barrels (42,000 gallons).
Options: One NYMEX Division light, sweet crude oil futures contract.
Crude Oil Futures and Options: Dollars and cents per barrel.
Crude Oil Futures and Options: Open outcry trading is conducted from 9:00 A.M.
until 2:30 P.M.
After hours crude oil futures trading are conducted via the GLOBEX internet-based trading platform beginning at 3:15 P.M. on Mondays through
Thursdays and concluding at 9:30 A.M. the following day. On Sundays, the session
begins at 6:00 P.M. All times are New York time.
Crude Oil Futures: 30 consecutive months plus long-dated crude oil futures initially
listed 36, 48, 60, 72, and 84 months prior to delivery.
Additionally, crude oil futures trading can be executed at an average differential to the previous
day's settlement prices for periods of two to 30 consecutive months in a single
transaction. These calendar strips are executed during open outcry trading
Crude oil options: 12 consecutive months, plus three long-dated options at 18, 24, and 36
months out on a June/December cycle.
Minimum Price Fluctuation
Crude oil Futures and Options: $0.01 (1¢) per barrel ($10.00 per contract).
Maximum Daily Price Fluctuation
Crude Oil Futures: $10.00 per barrel ($10,000 per contract) for all months. If
any contract is traded, bid, or offered at the limit for five minutes, crude oil
is halted for five minutes. When trading resumes, the limit is expanded by
$10.00 per barrel in either direction. If another halt were triggered, the
market would continue to be expanded by $10.00 per barrel in either direction
after each successive five-minute trading halt. There will be no maximum price
fluctuation limits during any one trading session.
Crude oil options: No price limits.
Last Trading Day
Crude Oil Futures: Trading terminates at the close of business on the third
business day prior to the 25th calendar day of the month proceeding the delivery
month. If the 25th calendar day of the month is a non-business day, crude oil
shall cease on the third business day prior to the last business day proceeding
the 25th calendar day.
Crude oil options: Trading ends three business days before the underlying futures
Options Strike Prices
Twenty strike prices in increments of $0.50 (50¢) per barrel above and below the
at-the-money strike price, and the next ten strike prices in increments of $2.50
above the highest and below the lowest existing strike prices for a total of at
least 61 strike prices. The at-the-money strike price is nearest to the previous
day's close of the underlying futures contract. Strike price boundaries are
adjusted according to the crude oil futures price movements.
Margins are required for open crude oil futures or short options positions. The margin
requirement for an options purchaser will never exceed the premium.
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