Crack Spread Options

[james_gsx 16]

I am looking at playing the CL/heating oil crack spread through options. I have been watching energy for quite some time and I want to start using real money. Has anyone ever used options to trade energy like this? If so, what kind of advice could you give me? Options are relatively new to me, but I'm definitely willing to learn more.

 

Thanks.

[russian_bear 10]

by the way, Why you want to trade "crack spread" using options? I never traded "crack spread" but from first glance it seems to me that plain futures should be more easy to trade.

 

Alex

[james_gsx 16]

by the way, Why you want to trade "crack spread" using options? I never traded "crack spread" but from first glance it seems to me that plain futures should be more easy to trade.

 

Alex

 

$$$$

 

 

Not to ignore the fact that CL options are EXPENSIVE! But, at least I won't get killed and my families belongings taken due to daily price volatility :o

[russian_bear 10]

sorry, but I still don't understand

if you trading "crack spread" then you "long" one instrument and "short" another instrument that has strong correlation to firts instrument, so your total market position is "neutral" and you should not be killed by strong movement in any direction...

MM should be enough to trade "crack spread" using pure futures... right?

[james_gsx 16]

Yes, you can use futures to do this and that's the easiest way to understand. But you can still utilize a spread using options, except in this case you would formulate the strategy to create a crack spread around options to become neutral in your position. The NYMEX website has some stuff on the crack spread options.

 

But as to why I wouldn't use regular futures, again it comes down to money. It's expensive to use enough futures to actually generate any income. Not to mention the price swings are extremely volatile. It would be easier to use options where the greeks would work in my favor and essentially be cheaper and wouldn't incur as much heat.

 

Typically a company would use a crack spread to hedge against their oil or natural gas inventory that they had to sell on the open market. But in this case, I would adjust the spread to collect premiums, so I guess crack spread is the wrong term, but I'm still up for discussion on it.