Strategies For Investment In Oil Futures

SetForget Pattern Profit

Movements in oil prices are very volatile. This will not change in the near future either as political and economic worries continue across the globe. Factors such as pipeline or supply disruption, conflict and war are just a few of the reasons why prices can fluctuate widely. If you are trading oil futures it is essential to take steps to protect your investments.

Hedging Your Profit

If the price of oil is fluctuating rapidly it means there is more risk in the market. To account for the added risk traders need to adjust their investment strategy accordingly. Many traders of oil futures look to hedge their positions in the event of volatility. By staying flat on their position and locking in profits allows them to ride through uncertainty and trade out of the position when a stable trend resumes.

Following the Trend

Anticipation of futures prices all depends on direction of the trend. Using a trend following strategy is not always easy in oil trading because of its wild swings however it is proven that when a direction is clear trend following is a very profitable way to trade. Many futures traders look for seasonal effects on prices of oil. Colder times mean higher demand and higher prices, warm means the opposite. There are many other regular patterns which can be forecast over the longer term for those who adapt to this style.

Day Trading Oil

If a trader is looking for shorter term investments in oil futures then they will encounter a very volatile environment. Huge intraday spikes can occur on inventory data being released. Any trader adopting this strategy needs to be aware of the risk that the market can swing against them fast. Protective stops and limit orders are essential to get out of a trade with profit or minimal loss.

Short term traders also need to have charting software. Plotting the oil futures price onto a chart can show them previous levels of support or resistance where the price has turned. Often the price will stall at these areas before deciding its next move which throws up opportunity to hop on board and profit from a ride in a different direction.

As with any investments traders must stay ahead of the news. Keeping up to date with political matters and economic data is essential to having a view on direction. It’s been seen time and time again that news drives prices, often wildly, in the direction of the trend. Don’t fight sentiment, go with the direction and trade the news.

To help keep ahead of the trend www.futuresforecasts.com offers daily directional forecast charts. The site is free and can be a useful guide to the futures market.

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Options Trading Strategies | The Long Put

The buyers of a put think about how to benefit from the falls of price of the underlying one or be protected from them. They have a downward vision of the market and usually hope that it should increase the volatile nature.

New York - "GREED STREET or Wall Street.....
New York – “GREED STREET or Wall Street…U decide?” Colorful tags below (Photo credit: David Paul Ohmer)

The long put option strategy is a basic strategy in options trading where the investor buy put options with the belief that the price of the underlying security will go significantly below the striking price before the  expiration date. His risk, his potential of loss, is limited to the premium whereas his potential of benefit is unlimited to the expiration on a descending market.

The threshold of profitability in this operation, is the price of exercise – the price of the premium. On the other hand to emphasize that his delta increases up to-1 as they lower the prices of the underlying assets.

More BEAR are the expectations of the market, the put must buy to itself in the position OTM as deep as possible, that is to say that the lowest price of exercise must be for the buyer of the put. Compared to short selling the stock, it is more convenient to bet against a stock by purchasing put options as the investor does not have to borrow the stock to short. Additionally, the risk is capped to the premium paid for the put options, as opposed to unlimited risk when short selling the underlying stock outright.

Let’s put an example: A Spanish company has come to an agreement with an American company tolling that to pay the Spaniard in 3 months a quantity in dollars. The Spanish company believes that the dollar can re-point opposite to the current levels that the euro shows, for what it does not want to cover this risk (it would win less), so he buys a put to 1,28, which is the current change (1,28 dollars = to 1 euro).

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