RBOB Unleaded Gasoline Futures and
Options Market Trading
Learn the most effective strategies for buying
and selling options on futures contracts. Also learn producer and
consumer hedging strategies.
*The information contained within this webpage comes from sources
believed to be reliable. No guarantees are being made to the
content's accuracy or completeness.
Unleaded Gas Futures Trading Facts
Gasoline is a complex mixture of hundreds of lighter liquid hydrocarbons used in
internal combustion engines.
Gasoline makes up the largest "cut" from a barrel of crude oil. Approximately
half of the barrel of crude oil is refined into gasoline.
Gasoline is the largest single volume refined product sold in the United States
and accounts for almost half of national oil consumption. Congress amended the
Clean Air Act in 1990 to mandate the addition of ethanol to gasoline.(RBOB) Reformulated gasoline blendstock for oxygen blending
is the gasoline used since the banning of MTBE as an additive to gasoline.
RBOB Unleaded gas future contracts are one of the
largest distillates of crude oil contracts traded at
the NYMEX. Unleaded gas future contracts may be the most important
energy future of all of the petroleum distillates.
Unleaded Gas Futures and Options Quick Facts
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42,000 gallon contract size
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one cent move equals $420
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trades all months
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Unleaded gas futures symbol (RB)
Here is the energy products brochure courtesy of the CME
Group.
Energy Brochure
The formula for unleaded gas is adjusted based on the temperature that is
anticipated for a certain marketing area up to six times per year. The purpose
of this adjustment is to help the gasoline vaporize more readily. Especially in
winter facilitating cold starts and better driving performance.
During the Sept. 11 attacks the NYMEX was destroyed
but because of the strength and resilience of the
futures markets and the exchanges, the unleaded gas future contracts were trading within
days of the attacks. This is a testament to the
futures markets reliability and integrity.
Are you an
unleaded gas hedger?
If so,
click here
to learn more.
RBOB Unleaded Gas Options on Futures
Contracts Explained
An unleaded gas call option
gives the purchaser the right but not the obligation to purchase the
underlying futures contract for a specific time period and a specific
price (strike price). Let's say that you wanted to purchase a
November unleaded gas $2.10 call option and pay a premium of $3,200.
This means that you bought the right but not the
obligation to buy 42,000 gallons of November unleaded gas for $2.10
per gallon. Of course, very few options are bought for the purpose
of taking delivery but that is one potential outcome. Chances are
that you either bought the unleaded gas option to hedge your price
risk in the physical unleaded gas market (maybe you are a producer
like a refiner or maybe you are a consumber and own a transportation
company) or you are speculating that unleaded gas prices will go
higher in an attempt to make a profit.
A unleaded gas put option gives
the purchaser the right but not the obligation to sell the
underlying futures contract for a specific time period and a specific
price. Let's say that you wanted to buy a November unleaded gas
$1.99 put option and pay a premium of $3,100.
This means that you have the right but not the
obligation to sell 42,000 gallons of November unleaded gas at $1.00
per gallon.
What is the delta factor?
The delta factor of an option represents the
estimated percentage of change an option will receive based on the
movements in the underlying futures contract.
Let's assume the November unleaded gas $2.10
call option above has a 30% delta factor. This means that if the
underlying futures contract were to rally by $1,000, then the call
option would accrue by approximately $300 or 30% of $1,000 in the
RBOB unleaded gas futures contract.
What is theta?
Options are wasting assets which means that they
lose value as time passes. The theta of an option is the measure of
time decay.
Let's assume that you bought a November unleaded
gas $2.10 call option with 60 days left until expiration. Let's also
assume that the unleaded gas futures prices have moved very little
over the last month and are exactly the same price 30 days later.
Your option will have lost 30 days worth of time and therefore will
be worth less today that it was when it had 60 days left until
expiration.
What is
vega?
Vega is a measure of the implied volatility of
an option contract as it relates to its underlying futures contract.
For instance, if the underlying futures contract is extremely
volatile then the implied volatility of the options of that futures
contract will be affected.
In a high implied volatility environment option
premiums tend to expand. Conversely, in a low implied volatility
environment the option premiums tend to decrease.
To
visit other energy futures visit
crude oil futures,
heating oil futures
and natural gas futures.
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