At-a-glance
- Traders often anticipate price changes in crude oil futures and want to take quick action to capitalize on the price movement.
- Micro WTI Crude Oil options are ideal for traders of all sizes to express their views and optimize trading strategies.
Micro WTI Crude Oil options are:
- 1/10th the size of standard WTI Crude Oil options contract
- Weekly and Monthly expirations offer flexibility to manage risks of market moving events with precision timing
- Flexible trading with lower dollar premiums
- Financially settled options offer simple expirations
| NEW MICRO WTI CRUDE OIL OPTIONS | WTI CRUDE OIL OPTIONS | NEW MICRO WTI CRUDE OIL WEEKLY OPTIONS* | WTI CRUDE OIL WEEKLY OPTIONS | |
|---|---|---|---|---|
| CONTRACT SIZE | 100 barrels | 1,000 barrels | 100 barrels | 1,000 barrels |
| RATIO TO STANDARD CONTRACT | 1/10 | Standard | 1/10 | Standard |
| MINIMUM TICK INCREMENT | $0.01 per barrel | $0.01 per barrel | $0.01 per barrel | $0.01 per barrel |
| DOLLAR VALUE OF ONE TICK | $1 per contract | $10 per contract | $1 per contract | $10 per contract |
| PRODUCT CODE | MCO | LO | MW1 – MW5 | LO1 - LO5 |
| SETTLEMENT | Financial | Physical | Financial | Physical |
| TRADING HOURS | CME Globex: Sunday – Friday: 5:00 p.m. to 4:00 p.m. Central Time (CT) Monday – Friday: 60-minute daily trading halt beginning at 4:00 p.m. CT | |||
| LISTING EXCHANGE | NYMEX | |||
Micro WTI Crude Oil options have monthly and weekly listings. The monthly contract will expire on the same day as the WTI Crude Oil options. Each weekly contract will expire on a Friday.
The direction of the oil market is often changed abruptly by events – an OPEC decision to raise or lower production, the release of inflation figures, and geopolitical developments are a few examples. The WTI Crude Oil futures and options contracts are some of the most liquid and actively traded commodities contracts in the world. They allow traders and hedgers who anticipate these events and the market reaction to them to position themselves accordingly. The Micro WTI Crude Oil futures contracts were launched in 2021 to provide traders of all sizes access to WTI oil market exposure and liquidity. Now, monthly and weekly options contracts on the Micro WTI Crude Oil future allow even greater flexibility and precision for traders to manage oil price volatility.
Buying a call option on crude oil allows a trader’s position to increase in value when crude oil prices rise, not incurring losses if prices fall. He or she pays a premium for the options, which represents the maximum loss on the position and is often compared to buying an insurance policy. Buying a put option provides the opposite exposure: a put-owner’s position will increase in value when crude oil prices decline, but his or her loss will be limited to the option premium paid if prices rise.
Below are some examples on how a trader could position his or her portfolio for expected changes in the price of WTI Crude Oil by using CME’s Micro WTI Crude Oil options products.
Example 1: Trader positions portfolio for a fall in WTI Crude Oil by buying a monthly put option.
A trader is concerned that an upcoming series of diplomatic meetings and economic news over the next several months will put significant downward pressure on energy prices, particularly crude oil.
- Strategy: Buy Micro WTI Crude Oil Monthly Puts expiring in two months
- In June 2022, Aug22 WTI futures are trading at $97
- Buy two Aug22 WTI Micro Crude Oil put options with a strike of $93
- Pay $2.90 each or $580 of premium: $2.90 x 2 contracts x 100
- Results: On September 15, 2022, the expiration date of the put options, Oct22 crude oil settles at $86.25
- The trader collects $1,350 on the put option: ($93 strike - $86.25) x 2 contracts x 100
- The trader earns a profit over the premium paid
- The trader would have broken even on the trade with WTI at $90.10
Example 2: The trader uses Micro WTI Crude Oil Weekly Call options to capture short-term appreciation in WTI price.
A trader observes that at $92 per barrel July WTI is now near the low end of its 60-day trading range. With recent bearish fundamental news in the past and geopolitical risks persisting, the trader believes that WTI may break out to a new high by next Friday, exceeding $113 per barrel.
- Strategy: Buy a weekly call option expiring two weeks in the future
- Prompt WTI is trading at $92 per barrel
- Buy one call option expiring in two Fridays with a strike of $100
- Pay $2.20 in premium or $220: $2.20 x 1 contract x 100
- Results: On the third Friday, the underlying WTI contract settles at $113.50.
- The trader collects $1,350 on the weekly call option: ($113.50 - $100 strike) x 1 contract x 100
- He or she earns a profit over the premium paid
- The trader would have broken even on the trade with WTI at $102.20
Oil prices often move abruptly due to a confluence of events and technical factors. Micro Crude Oil options bring traders of all portfolio sizes the flexibility to manage volatility and express their views on oil market events by accessing the liquidity of WTI with lower premiums and contract sizes.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
