Crude Oil Drops And Recuperates: Here Are Two Strategies Traders Are Using

• Oil markets were up on Tuesday, after the big losses registered on Monday, when prices hit their lowest intraday levels since the financial crisis, ahead of the Congress and Fed’s decisions.
• However, Brent Crude rose more than 1.7 percent on Tuesday morning, hitting $38.57 per barrel, and continued to surge in the afternoon hours.
• Below is a look at a couple of ways to play this.

Do you think oil will recuperate? Do you believe it will linger around current prices? Or do you believe there’s further downside to come?

Whatever your thoughts on the issue are, there a few ways to play the event. Binary options and bull spreads might offer two interesting way to do this -- with relatively low collateral.

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What Are Binary Options?

Investing via binary options is just that: playing a binary event. “Binary options are limited risk contracts based on a simple yes/no market proposition like will the markets go up by the end of the trading week,” binary options trading site Nadex says.

How To Trade Oil With Binary Options

Via binary options, traders can take action on the results they expect, with limited risk. Below is an example of how to trade energy (in this case, oil) using binary options.

In the following example the underlying crude oil future is trading around $39.50.

A standard Crude Oil Binary Option may look something like: Crude Oil (Jan) > 41.50 (2:30PM)

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For those who think that the crude oil future will trade below 41.50 at 2:30pm, selling this Binary Option may be the way to go.

On the other hand, those who believe the crude oil future will trade above 41.50 at 2:30pm could buy the Binary Option.

What Are Bull Spreads?

Spreads “offer built-in floor and ceiling levels that define the lowest and highest points at which the trade can settle.” This implies that investors know how much they can win or loose from the outset.

How To Trade Oil With Bull Spreads

Similar to the previous example, the underlying crude oil future is trading around $39.50.

A standard Crude Oil Bull Spread may look something like: Crude Oil (Jan) 40.75-42.25 (2PM).

This means that the 'floor' is 40.75 and the 'ceiling' 42.25.

If you believe the crude oil future will be above 41.17 at 2pm, Buying the Bull Spread might be the way to go. If you think the future will trade below this level, Selling might be best.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.