Traders can utilize new Monday and Wednesday WTI Crude Oil Weekly options, along with highly liquid Friday Weekly options and monthly options, to precisely manage price risk in the global crude oil market. 

Weekly options have shorter expirations and lower premiums. For a small cost, you can use CME WTI Crude Oil Weekly options to protect your crude oil portfolio from headline weekend risk or market moving events such as the weekly Wednesday EIA Petroleum Status Report. 

Below are two hypothetical examples of how traders could have used the new Monday and Wednesday options to effectively manage their portfolios around market moving events.

Using the Monday Crude Oil (ML1-ML5) options to hedge a portfolio over a weekend

Crude oil markets react quickly to weekend news events. Geopolitical events rarely wait for markets to open to cause a shift in oil prices. Monday WTI Crude Oil Weekly options are a cost-effective and precise tool that traders can use to manage their portfolios that happen when markets are closed. 

Past weekend events have influenced crude oil prices at the weekly opening due to market-making occurrences. Whether it is supply impacts such as the drone attack on Saudi Aramco in 2019, the release of additional oil from the U.S. Strategic Petroleum Reserve, or demand impacts like the spread of new COVID-19 variants, or uncertainty over the debt ceiling in the U.S., traders need precise tools to manage price risk when markets are closed over the weekend. 

Suppose that a bearish trader is closely following the news of additional crude oil reserves being released from the U.S. Strategic Petroleum Reserve (SPR). Officials have noted that they are targeting to replenish the SPR at prices around $75/barrel. With front-month WTI Crude Oil futures falling and approaching a price level of $75/barrel, this bearish trader wants to protect himself should markets react positively to an announcement of a purchase for the SPR that can come at an unpredictable time. 

As he heads into the weekend, the trader builds an RFQ-strategy in CME Direct and purchases 100 of an out-of-the-money vertical $80/85 call spread for $0.50 using the closest to expiration WTI Crude Oil Monday options protecting his bearish portfolio if the news of an SPR purchase comes over the weekend. Each contract has a notional value of 1,000 barrels, which means that the trader only spent $50,000 to hedge 100,000 barrels of exposure.

On Saturday, the U.S. Department of Energy announces that they will begin purchasing crude oil in the next month to replenish the SPR sending WTI crude oil prices above $80/barrel when markets reopen. The vertical call spread is now in-the-money and the trader exits his position at $1.50. The trader was able to effectively hedge his portfolio with a low premium Monday option strategy. 

EXAMPLE: Weekend Hedge Details – Using Crude Oil Monday options

Strategy

Long $80/85 vertical call spread

Option

Monday WTI Crude Oil option (ML1-5)

Number of Barrels Hedged

100,000

Hedge Cost

($50,000)

Hedge PnL

$100,000

Using the Wednesday Crude Oil (WL1-WL5) options to profit from the Wednesday EIA Report

Each Wednesday, the U.S. Energy Information Admiration (EIA) releases the Weekly Petroleum Status Report. Now traders can use Wednesday WTI Crude Oil Weekly options to manage their exposure more precisely to this weekly report that shapes the crude oil market.

In this scenario suppose that WTI Crude Oil futures have been range-bound between $80/barrel and $90/barrel. The previous three weeks of EIA inventory numbers have been consistently below expectations and have trended much lower than their five-year averages. A trader that does not think that this trend will continue and purchases 500 of an out-of-the-money vertical $75/80 put spread for $0.55 using the front week Wednesday WTI Crude Oil option to profit if inventory numbers are higher than expected. 

The report comes in unexpectedly above expectations reversing the trend and sends Crude Oil futures prices below $75/barrel and the put spread is now in-the-money. The trader exits his position at a premium of $2.40. The trader was able to precisely manage his portfolio and express his views of the EIA report using a Wednesday WTI Crude Oil options strategy. 

EXAMPLE: Profiting from EIA Report Using Crude Oil Wednesday options

Strategy

Long $75.00/80.00 vertical put spread

Option

Wednesday WTI Crude Oil option (WL1-5)

Number of Barrels Hedged

500,000

Trade Cost

($275,000)

Trade PnL

$925,000

CME Group now offers options expiring on Monday, Wednesday, and Friday, as well as monthly expirations, giving traders additional tools to navigate the global crude oil market. 


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.

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