Oil call option prices
Oil oil call option prices are on the way back up. The big question in the media oil call option prices days is where is it going now? Like everyone else, I have my opinion which I gladly shared on Fox Business this week, oil call option prices fellow analyst aghast that I dare counter Goldmans forecast. However, opinions on where prices are oil call option prices are more oil call option prices a fun conversational topic for the media.
This is not an exciting media topic. But, as with anything in life, the story of how things really get done seldom is. A big focus of many oil bulls has been the falling Rig Counts in the US.
To be sure, US rig counts have fallen drastically. Nationally, the count is down to from 1, just last year. Yet crude production levels have not yet fallen significantly. We cannot then, directly attribute the rise in crude prices simply to falling rig counts. Certainly not Saudi Arabia which continues to pump out 10 million barrels per day. And not US drillers, which despite falling rig counts, continue to crank out 9. Could it be Macro factors?
Yesterday, the EIA lowered its crude production growth estimate, while raising its forecast for U. The report came after OPEC raised its forecast of global oil demand to 1.
Is the global oil balance responsible for higher prices? And markets rarely respond immediately to such longer term predictions, making this an unlikely cause. What is going on is Expectations. In particular, it is expectations for crude stockpiles to begin a oil call option prices.
And this despite rising stocks, this expectation has been going on throughout for several months. Last month saw all time highs in crude storage levels in the US. Because this is the futures market. Futures look forward to the future. This is what novice oil traders never seem to understand. Prices are based on how traders expect the supply level to move in the future. And right now, traders are expecting the supply to fall.
This anxiety brings buying into the market — with both traders and some end users trying to buy now before prices theoretically rise later — when supply is even lower. Last week, the weekly Energy Oil call option prices Agency stocks report showed the first draw on crude oil inventories in several months after swelling to all time highs in April. This week saw the second consencutive draw on stocks. This weeks consensus was for abarrel draw on stocks. Instead we saw a 2. Last week, consensus was for a 1.
Instead, the EIA report showed a 3. Refinery profit margins are soaring — giving them incentive to ramp up production NOW to make more profits while it lasts.
And ramp up they are. This means using raw crude oil at a faster rate, thereby drawing down supply. There is another reason refineries are using up crude at a faster clip.
Good weather brings vacationers and more overall traffic the roads, driving up demand for gasoline. Distributors prepare for this phenomenon in advance by building up gasoline stockpiles in the Spring.
This increase in wholesale demand means refineries increase output during these time periods. Thus the combination of high refinery profit margin and increased wholesale oil call option prices demand are driving up refinery operating rates. This is expected to begin to draw down crude stockpiles.
The seasonal chart below indicates that in past years, expected seasonal demand followed by actual draws on crude stocks has tended to have a bullish impact on prices — often deep into summertime. While there is no guarantee prices will trade higher this year, we have every reason to believe crude stocks will begin a gradual decline this month.
While past performance is not indicative of future results, in past years, oil prices have tended to gain strength into US summer driving season.
We do not see crude oil at the beginning of a bull move but rather in the middle of one. As the public begins to see draws in crude stocks, it could create another leg higher into the summer months.
The trend higher was started by traders fueled by expectations. It could be continued by the public as they watch those expectations come to pass. With seasonal demand in full swing, refinery operating rates spiking and a strong seasonal tendency for firmer prices, it is our opinion that crude oil prices will strengthen into mid-summer. However, rather than attempting to profit from a potential push higher in crude prices, would not a higher probability trade be to simply invest in the idea that crude prices will not fall substantially in the next 90 days?
If that makes sense to you, you have just discovered the strategy of selling puts in bullish markets. These options expire in August and could be nearly worthless by July on just a modest uptick in crude prices. More conservative traders can look to sell the November 42 puts for similar premium to stay further oil call option prices of the money. This trade may be able to be converted oil call option prices a strangle this summer as receding crude prices are possible this fall.
Until then, take advantage of some of the put premiums in crude available now. And have a great month of Option Selling. Use it at your own risk. There is risk of loss in all trading. Past performance is not necessarily indicative of future results. Traders should read The Option Disclosure Statement before trading options and should understand the risks in option trading, including the oil call option prices that any time an option is sold, there is an unlimited risk of loss, and when an option is purchased, the entire premium is at risk.
In addition, any time an option is purchased or sold, transaction oil call option prices including brokerage and exchange fees are at risk. No representation is made that any account is likely to achieve profits or losses similar to those shown, or in any amount. An account may experience different results depending on factors such as timing of trades and account size. Before trading, one should be aware that with the potential for profits, there is also potential oil call option prices losses, which may be very large.
All opinions expressed are oil call option prices opinions and are subject to change without notice.
A call optionoften simply labeled a "call", is a financial contract between two parties, the buyer and the seller of this type of option. The seller or "writer" is obligated to sell the commodity or financial instrument to the buyer if the oil call option prices so decides. The buyer pays a fee called a premium for this right.
The term "call" comes from the fact that the owner has the right to "call the stock oil call option prices from the seller. Option values vary with the value of the underlying instrument over time. The price of the call contract must reflect the "likelihood" or chance of the call finishing in-the-money.
The call contract price generally will be higher when the contract has more time to expire except in cases when a significant dividend is present and when the underlying financial instrument shows more volatility.
Determining this value is one of the central functions of financial mathematics. The most common method used is the Black—Scholes formula. Importantly, the Black-Scholes formula provides an estimate of the price of European-style options.
Adjustment to Call Option: When a call option is in-the-money i. Some of them are as follows:. Similarly oil call option prices the buyer is making loss on his position i. Trading options involves oil call option prices constant monitoring of the option value, which is affected by the following factors:.
Moreover, the dependence of the option value to price, volatility and time is not linear — which makes the analysis even more complex. From Wikipedia, the free encyclopedia. This article is about financial options. For call options in general, see Option law. This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources.
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