Oil Options

Buying Oil Options. Options in Oil.

Oil Options

Investing in the oil options market is very exciting and more importantly, very profitable. Not surprisingly, every day more and more people are starting to invest in oil options. The New York Mercantile Exchange (NYMEX) began to trade heating oil futures in 1978. The exchange later introduced crude oil, gasoline and natural gas futures. Airlines, shipping companies, public transportation authorities, marine transport operators, oil retailers, wholesale marketers, oil refineries, home heating oil delivery services and major multinational oil and gas companies have all sought to hedge their price risk using these futures contracts. Today, oil option contracts are used as a risk management vehicle and pricing mechanism. Options can be used independently or with futures to create hedging strategies to fit any risk profile or cost consideration.

In 1990, the NYMEX traded over 35 million energy futures and option contracts. In its early years, the NYMEX heating oil contracts mainly attracted wholesalers and large consumers of heating oil in the New York Harbor area. Soon however, its use spread to geographical areas outside of New York and it became apparent that the contract was also being used to hedge diesel fuel, which is chemically similar to heating oil and jet fuel, and trades in the cash market at a usually stable premium to NYMEX heating oil futures.

Seasonal, economic and political factors influence the relative prices of heating oil, gasoline, crude oil, natural gas and propane. To help manage risk, market participants can trade NYMEX Division heating oil through NYMEX ACCESS, the exchange's after hour electronic trading system. The system is available 5 nights a week, Sunday to Thursday, during hours that the trading floor is closed. Workstations are available throughout the US, London, Sydney, Australia and Hong Kong.

The New York Mercantile Exchange public information office makes information available to the public 24 hours a day through Fastfacts, a state-of-the-art phone system that puts you in touch with vital exchange information. Statistics such as price and volume are updated every 5 minutes by the exchange mainframe computer. New information is available within 30 minutes.