20.3.16

Trade Oil Warrant in Bull Market

Traders've just had a look at Crude Oil and feel prices are about to head higher. Assuming he doesn't want to trade oil future with a lot of risk because of surprising move, then he might consider buying Bull Warrant. A Bull Warrant aims to make money in a rising market.

There are many type of warrants available depending on expiry, trigger point(strike price) and the size of the warrant. As an investor, he could trade any one of these warrants depending on his view of Crude Oil.


Warrant 1 Warrant 2 Warrant 3
Cost $ 14,825 $14,825 $14,825
Expiry 90 Days  90 Days 30 Days
Strike Price $60$50 $50
Controlling 6000 barrels of Oil 2000 barrels of Oil 3000 barrels of Oil
$1 move $8570 $2860 $4285

If traders expect the price of Oil to sky rocket, he would look to buy Warrant 1 since  the Warrant has a high degree of leverage. This Warrant would be worth $8,570 for every Dollar the market is trading above $60US per barrel.

Let's say the oil market was trading at $80 on the day the Warrant expires. The Warrant would then be worth $171,428.

If his view was not as bullish as in the above example and he thought the market would get to only $60 over the next few months, then Warrant 2 would be the best choice. This Warrant has less leverage than warrant 1( 2,000 barrels versus 6,000 barrels), but the lower trigger point (strike price) means the market does not have to move as far for the Warrant to make money. With Crude Oil at $60 at the time the Warrant expires, the position would be worth $28,600.

Warrant 3 has a shorter time  to expiry (30 days versus 90). However the advantage here is that it is has a more leverage ($4285 per dollar move) and a low trigger point ($50 versus $60 for Warrant 1). This warrant would be ideal if traders expected a small, but quick rise in the market.

The risk with any one of these Warrants is simply their initial cost. if the market was below the trigger point at expiry, the warrant would be worthless.

The table below sets out values for three Warrants, given different market outcomes. These numbers are all based on the price of Crude Oil at the expiry.



Warrant 1 Warrant 2 Warrant 3
$1 move equals $8,570 $2,860 $4,285
Value with Oil at

$40 $0$0 $0
$50 $0 $0 $0
$60 $0 $28,600 $42,850
$70 $85,700 $28,600 $42,850
$80 $171,400 $85,800 $128,550
$90 $257,100 $114,400 $171,400
$100 $342,800 $143,000 $214,250


Crude Oil Mar 2015 - Mar 2016
This chart show 12 months of movement in the price of Crude Oil. The fluctuations in price have offered some wonderful investment opportunities. Traders can use Oil Warrant to make profit from both a rising or a falling market where market movements in either direction are successfully anticipated.

About Crude Oil

Light Sweet Crude Oil is one of the most recognised and exciting commodity markets today. It is a market that is highly influenced by political factors, global inflation, currency movements and supply considerations. the price of Crude Oil offers a wonderful trading opportunity thanks to its volatile nature.

Light Sweet Crude Oil is the most popular energy market for traders worldwide. Light sweet crude is prefered by refiners because of it lows sulfur content and relatively high yield of high value products such as gasoline, diesel fuel, heating oil, and jet fuel.

Crude oil was formed over millions of years ago from the remains of tiny aquatic plants and animals that lived in the acient seas. It was believed that Crude oil has mdeicinal benefits by ancient Persians, 10th century Sumatrans, and  pre-Columbian Indians.

OPEC is the acronym for the Organization of Petroleum Exporting Countries and consists of those countries organized for the purpose of negotiating with Oil companies on matters of Oil production, price, and furture concession rights. OPEC meets on a monthly basis to determine, among other things, agreed production limit for Crude Oil within the member countries. OPEC members account for around 40% of global supply.

Crude Oil is quoted in US Dollars per barrel. One barrel equals 42 gallons and 7.33 barrels equals 1 tonne. In 2002, the world produced on average, over 66 million barrels (over 9 million tonnes) per day of crude oil.