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Light, Sweet Crude Oil Future Contract
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No guarantees are being made to the content's accuracy or completeness. 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.
WTI crude oil brochure. 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. The crude oil futures contract trades in units of 1, 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 days the 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.
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. October 30 for the October contract. Are you a crude oil hedger? If so, click here to learn more. 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. 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.
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. 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 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.