Crude oil options become more attractive

Investors rush to black gold as a safe haven from less predictable options


27 Jan 2012

Investors who are interested in getting into commodity trading may be familiar with trading gold, silver, or other precious metals. However, they may not be familiar with crude oil options, which give investors the opportunity to purchase crude oil in increments of 1000 barrels. By making wise trades in the market, traders may make a profit by purchasing crude oil options.

What are crude oil options?
As the name implies, a crude oil option is a contract that gives an investor the option to purchase crude oil futures. The investor is not required to go through with the transaction. Like traditional stock market options, crude oil options are available as either puts or calls. A trader who expects the value of crude oil to rise may purchase a call option, which gives them the ability to purchase the stock at its lower present value and then sell it later when it rises in value. An investor who believes that crude oil will decrease from its current value may purchase a put option, which gives him/her the ability to short sell the futures at their present price and then make a profit by purchasing them at their lower price later.

How crude oil options have gained popularity
Crude oil options have become a popular investment category within the last century. Unlike older commodities such as precious metals, the value of crude oil has risen relatively recently with the invention of the automobile. In our modern world, crude oil has literally become precious, since the resource cannot be renewed and is possessed by very few countries. Within the last few years, the price of crude oil has significantly spiked as evident in the price of gasoline in developed countries. With more and more countries using personal vehicles as the standard mode of transportation, fuel shortages are becoming increasingly common. While this situation is precarious for individuals, it has been extremely profitable for crude oil investors who have seen their investments grow exponentially in the same time period.

Finding a company to use for crude oil trading
Several trading firms allow investors to purchase or sell crude oil options in a manner similar to Forex currencies. Like Forex brokers, most crude oil trading brokers do not charge a commission, but rather add a spread onto the end of each transaction in order to collect their fees. Traders can also conduct their crude oil trades online at any time they choose. Finding the best investment strategy for crude oil options, though, can be tricky, since the value of oil rises and falls dramatically based on several external factors such as governmental unrest, natural disaster, and national conflicts. Most reputable crude oil trading companies include assistance that can help new traders decide when to make their trades in order to turn a profit. As with any commodity, investors should be aware that crude oil options carry a substantial amount of risk.