Heating Oil options let a buyer take a view on price changes while paying a premium for a limited period. A call offers exposure to a rise; a put offers exposure to a fall. The size of the move and the premium determine whether the buyer makes money.
How heating oil options work
The examples use options on NY Harbor ULSD futures. A call gives the right to enter a long futures position at the strike price. A put gives the right to enter a short futures position at that price.
A heating-fuel supplier may buy calls ahead of winter. Match the ULSD benchmark to the actual fuel and delivery region being hedged.
The cost of one option
One NYMEX contract represents 42,000 gallons. At a premium of $0.1 per gallon, one option costs $4,200 ($0.1 × 42,000).
Assume the futures price and strike are both $2.5 per gallon. The call and put premiums are each $0.1 for comparison, not current quotes. Results below are at expiration, before fees, with any futures position from exercise immediately closed at the stated price.
Buying heating oil calls
Suppose you expect heating oil prices to rise and buy one $2.5 call for $4,200.
If the underlying future reaches $2.8 per gallon at expiration, buying at $2.5 gives an advantage of $0.3 per gallon. Across 42,000 units, that is $12,600. After the premium, your net profit is $8,400.
At $2.5 or below, the call expires worthless and the loss is $4,200. Breakeven is $2.6 per gallon: strike plus premium. At $2.55, the call has value but still loses $2,100 after its cost.
Buying heating oil puts
If you expect prices to fall instead, buying one $2.5 put costs $4,200 in this example.
At a futures price of $2.2 per gallon, selling at the strike gives an advantage of $0.3 per gallon. The option is worth $12,600 at expiration, leaving a $8,400 net profit after the premium.
At $2.5 or above, the put expires worthless. Breakeven is $2.4 per gallon. At $2.45, the price has fallen, but the put still loses $2,100: the move has not covered its premium.
Before expiration
An option can be sold to close before expiration when a market is available. Its price then includes the effect of remaining time and implied volatility, so an earlier trade need not break even at the expiration price calculated above.
The purchased option can lose its whole premium. Exercise can create a futures position requiring margin and exposing you to further gains or losses. An uncovered seller can lose more than the premium received.
Heating Oil price chart
Capital.com Heating Oil CFD reference price. This broker CFD (contract for difference) is a market reference, not a spot price or an exchange futures contract. Prices and quoting units may differ from the contracts described in this guide. Check the widget timestamp and market status; prices may be delayed.
