Volatility has risen for options on oil futures. Usually this has to do with basic supply and demand issues and associated market uncertainty. This time it has to do with interest rate driven oil futures options. In short the Federal Reserve has been buying $85 Billion in treasury bills every month. This has served to keep interest rates low and help with the economic recovery in the USA. However, the Fed will now keep this up indefinitely. According to recent comments by Fed chairman Bernanke, the Fed will gradually ease off of this policy as the economy improves. As is often the case word or two by the Fed chairman can rile the markets. In order to make a profitable option trade, a trader needs a glimpse of the future. When we have interest rate driven oil futures options traders look to the Fed for a hint of where interest rates and the economy are going. Uncertainty Begets Volatility The most profitable options trading commonly occurs when markets are volatile. Options are, in fact, made for volatile markets. When a trader buys calls or puts on a futures contract he or she need only execute the contract if it is profitable. A call gives the trader the right to buy and a put gives the trader the right to sell. In neither case is the trader obligated to do so. Thus an options trader can buy puts and calls in a volatile market and limit his or her risk to the price of the contract. In addition, buying options provides the trader with leverage. He or she does not need to buy or sell the underlying equity but rather pays to stake out a position which may be lucrative. The more volatile the market, the more profit a trader may be able to gain. Currently puts are running two to one to calls which tells us that more traders believe that the Fed will ease off and that interest rates will rise. The result will then be a cooling off of the economy and a reduce demand for oil.

1. Interest Rate Driven Oil
Futures Options
By: www.Options-Trading-Education.com

2. Volatility has risen for options on
oil futures. Usually this has to do
with basic supply and demand
issues and associated market
uncertainty. This time it has to do
with interest rate driven oil futures
options.
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

3. In short the Federal Reserve has
been buying $85 Billion in treasury
bills every month. This has served
to keep interest rates low and help
with the economic recovery in the
USA.
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

4. However, the Fed will now keep
this up indefinitely. According to
recent comments by Fed chairman
Bernanke, the Fed will gradually
ease off of this policy as the
economy improves.
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

5. As is often the case word or two by
the Fed chairman can rile the
markets. In order to make a
profitable option trade, a trader
needs a glimpse of the future.
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

6. When we have interest rate driven
oil futures options traders look to
the Fed for a hint of where interest
rates and the economy are going.
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

7. Uncertainty Begets Volatility
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

8. The most profitable options
trading commonly occurs when
markets are volatile. Options are,
in fact, made for volatile markets.
When a trader buys calls or puts on
a futures contract he or she need
only execute the contract if it is
profitable.
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

9. A call gives the trader the right to
buy and a put gives the trader the
right to sell. In neither case is the
trader obligated to do so.
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

10. Thus an options trader can buy
puts and calls in a volatile market
and limit his or her risk to the
price of the contract. In addition,
buying options provides the trader
with leverage.
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

11. He or she does not need to buy or
sell the underlying equity but
rather pays to stake out a position
which may be lucrative. The more
volatile the market, the more profit
a trader may be able to gain.
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

12. Currently puts are running two to
one to calls which tells us that
more traders believe that the Fed
will ease off and that interest rates
will rise. The result will then be a
cooling off of the economy and a
reduce demand for oil.
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

13. Interest Rate Options Trading
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

14. We are now seeing interest rate
driven oil futures options trading.
In a way trading oil futures could
be a way of trading interest rates.
However, one can easily buy puts
and calls on interest rate options as
well.
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

15. To profit from interest rate options
one need only evaluate the factors
that directly affect interest rates
and not add in those that
otherwise affect oil prices. If you
are interested in trading options on
oil futures, do so.
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

16. If you interest is trading options on
interest rates, the better choice is
to limit your trading to the interest
rate options market and leave oil
futures options trading to those
whose skill set is more appropriate
to that market.
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/

17. As always when trading options do
your own fundamental and
technical analysis and do not be
afraid to sit out a trade if you are
uncertain factors such as how
interest rates drive oil futures.
By: http://www.options-trading-education.com/14268/interest-rate-driven-oil-
futures-options/