Wednesday, October 17th, 2018

Energy Sector Options

 

Trading energy sector options can be profitable. However, the energy sector is not just trading oil options in big oil with stocks like ExxonMobile – XOM or British Petroleum – BP. The energy sector includes every facet of research, development, manufacturing, exploration, extraction, refining, distribution, and sale of all sources of energy. One can trade energy sector options on stocks relating to virtually any step in the production of virtually any energy source. Here are a few examples that demonstrate the complexity of the energy sector.

Crude oil comes from sources around the globe. There are well over 300 different specific types and grades of crude oil. In the refining process crude oil is heated to higher and higher temperatures to remove gasoline, kerosene, diesel fuel, fuel oil, lubricating oil, paraffin wax, and finally asphalt. Crude oil is also the base from which many plastic and plastic films are produced. The oil industry includes oil exploration companies, drillers, pipeline operation, other means of transport, refining, end product transport and sales. In trading energy sectors options the oil sector provides ample opportunity. When to buy puts and when to buy calls on these stocks depends, as with all stock options trading on the use of fundamental and technical analysis of likely stock price changes. Just like oil, natural gas is extracted from deposits or it can be extracted by treating coal. Like the oil industry, the natural gas industry requires exploration, extraction, transport, and storage as well as sales. Coal must be dug from the ground and transported. Many forms of coal require purifiers in order to meet environmental safety standards. Energy sector options in these forms of energy are similar to those in oil. There are companies that search for new deposits, companies that extract, companies that transport and those that buy and then use the end product.

Nuclear power requires research, long term investment, and safety measures. Despite be best laid plans natural disasters like the earthquake a tsunami in Japan can not only disable nuclear power plants but also cause potentially dangerous radiation leaks. Renewable energy such as hydroelectric dams, wind power, solar power and the use of alternative fuels all require research and development a supply chain for materials, and forms of distribution of the power that they produce. Both nuclear power and renewable sources tend to get more attention as oil and gas prices rise and tend to be ignored as crude oil and natural gas become less expensive. There are a few big players like GE in the nuclear power field because the high technology involved. There are many smaller companies on which one can trade energy sector options in renewable forms of energy such as solar, wind, and photovoltaic power generation. Because of the potential for big price shifts based on hot and cold investor sentiment trading energy options on these sources often can be profitable. At a point trading energy sector options and commodity futures options come together. Ethanol make from field corn is a popular energy source when oil prices are high. This drives up corn as a commodity. When oil prices fall it can become a losing proposition to make ethanol this way and not only do ethanol operations fail but the price of corn falls as well. As always our point in this discussion to is to suggest that options traders investigate trading opportunities and not to suggest any particular stock.

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