Oil call options prices
The crude oil market has experienced a significant amount of volatility over the oil call options prices six months. Coming out of an early summer market driven by uncertainty over Russia and into a fall market dominated by oversupply concerns, it is clear that the only certainty is that market conditions are uncertain.
However, since the earnings strength of the exploration and production sector is so heavily tied to crude prices, it is important to have a handle on the probability of where prices might go. Although we may not be able to accurately forecast the direction of future prices, the crude oil options market gives us a very rich source of information about the probability and potential magnitude of future price moves. To the uninitiated, options trading can be pretty confusing, with lots of arcane jargon and terminology.
In isolation, a single options trade might only reveal a bet between two traders about the likelihood of prices exceeding some threshold. In aggregate, however, the options market reveals a probability distribution of future price settlements. Here oil call options prices a simple example. I conducted an analysis of the November 19th crude oil futures and options markets, oil call options prices used the implied volatility of the at-the-money option contracts to generate the following chart.
It shows the likelihood of crude oil prices settling below certain thresholds. As you can see from the chart, even though the market has fallen quite dramatically in recent months, there is still a significant chance it could fall further. Of course, prices can go in the other direction as well. It is ultimately unknowable how accurate these probabilities are. However, the options market reflects the aggregation oil call options prices the biases and interests of speculative traders, energy producers and consumers of crude oil.
Serious investors in the energy exploration and production sector would be wise to look to these markets for an indication oil call options prices future energy price scenarios.
Nottaasen via Flickr Creative Commons. All investments involve risk and various investment strategies will not always be profitable. Past performance is no guarantee of future results. So what should we expect going forward?
Energy Outlook Coming out of an early summer market driven by uncertainty over Russia and into a fall market dominated by oversupply concerns, it is clear that the only certainty is that market conditions are uncertain. Market wisdom In aggregate, however, the options market reveals a probability distribution of future price settlements. Latest entries Author archives Outlook Be wary of this renewable energy play.