Crude Oil Still Volatile: How To Take Advantage With Options
- Oil markets were up on Tuesday, after the big losses registered on Monday, when prices hit their lowest intra-day levels since the financial crisis, ahead of the Fed’s interest rate decision.
- Brent Crude rose more than 1.7 percent on Tuesday morning, hitting $38.57 per barrel, and continued to surge in the afternoon hours.
No matter traders' thoughts on the future of oil, there's a few ways to play the commodity flying under the radar. Binary options and bull spreads are worth looking at.
What Are Binary Options?
Trading via binary options is just that: playing a binary event based on a yes/no market proposition.
How To Trade Oil With Binary Options
Using 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).
For those who think that the crude oil future will trade below 41.50 at 2:30pm, selling the binary makes sense.
Those who believe the crude oil future will trade above 41.50 at 2:30pm could buy the binary -- it's all a matter of choice.
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," the site Nadex explains. In other words, traders know how much they can win or loose from the outset.
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 is 42.25.
If you believe the crude oil future will be above 41.17 at 2pm, buying a bull spread makes sense, while the opposite is true for selling one.
Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.
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