Trading futues contracts

[Oliver88]

Very good information Techanalyst, interesting to see if we can take advantage of low prices in other ways than buying more storage and filling tanks.

The July Heating Oil call option sounds like an alternative that could be utilized.
The 42,000gal contract is the standard size and there is no mini contract?

[TechAnalyst]

Unfortunately there are no mini contracts that I am aware of for HO (ULSD).

I didn't want to make it any more complicated than it already was but you can reduce the cost by reducing the coverage, making it more affordable on a smaller quantity.

In other words, you could buy a July $1.50/gal call option for $.0318 x 42,000 gal or $1336 US plus $70 commission (instead of $2,583 for the $1.30/gal call). It only protects about half of the break instead of 70% but is better than no protection at a reasonable price. That could get you down to about $.05/litre C$ on a 40,000 litre use farm.

And yes farming, the exchange rate consideration should be worked into it as well. I was trying to balance how detailed to get for the example.

One other point worth mentioning. Try not to buy calls on strong up days. The oil market has had a strong short covering rally ahead of talks to try to reduce output. The calls have doubled in price since Wednesday. The best time to buy them is once the optimism has faded and crude prices pull back or at least consolidate.