Fuel options
let investors bet on fuel prices.
Fuel options are a category of futures and options primarily focused on the heating oil market. These products are volatile and hard to predict, but popular among some investors. Investors seeking out an opportunity to trade these products will generally need to work with a futures broker who can help them execute transactions, and they will need to do extensive research to create a strategy that works well for them. However, as a growing market, fuel options present many trading opportunities.
Instructions
Open a Futures Brokerage Account
1. Research available futures brokers to find the appropriate one for trading fuel options. The ideal futures broker in this case is a broker who allows customers to trade such options, and has an account minimum for these trades that is less than the amount the investor wishes to invest in these transactions. Many brokers seek out particular kinds of investors, like currency traders or precious metals traders.
2. Select a futures product to trade. The most popular fuel option contract available is the NYMEX Heating Oil Options contract. This contract covers 42,000 gallons of heating oil. Heating oil options are available in put and call forms. In other words, an investor can make a bet that pays off when the price of heating oil increases, or when it declines. These contracts are also available with different monthly expirations. Investors making short-term trades can use short-term contracts, while investors pursuing a long-term thesis may choose longer-term ones.
3. Develop a trading strategy. Some investors choose to follow trends and to make trades in whatever direction the market is moving. Others prefer to "day trade" by looking for short-term patterns. Some investors trade based on economic factors (for heating oil, this might include factors like weather patterns or gas discoveries). Other investors create automated computer programs that execute trades for them based on pre-determined signals. Many brokerages allow these automated programs to be connected directly to the brokerage account.
4. Transfer funds to the account and begin trading. With a strategy in place and a contract selected, an investor will be able to start trading and earning money (or determining that their strategy is harmful). Most investors treat futures and options as a small part of a diversified portfolio, in order to avoid investing too much of their money into a single volatile asset class.
