Trading Crude Oil as a Binary Options Asset

Commodities are probably the scantiest of assets listed in binary options platforms. Be that as it may, crude oil always appears on the commodities asset list. The reasons are obvious.

It is the world’s most important commodity asset as virtually every facet of human life today depends directly or indirectly on crude oil.

Bear in mind when trading Crude oil, that this type of commodity has wide intraday volatility, allowing it to be traded for profit whenever the energy markets are open.

You will therefore find crude oil being traded during the following market hours:

1. Open Outcry (on the CME exchanges): 0900 EST to 1430 EST
2. Electronic trading: 1800 EST to 1715 EST (next day)

On the binary options platform, this will mean that traders can trade the oil binary options asset from 6pm US Eastern Coast Time to 5:15pm Eastern US Coast the next day, with a break for 45 minutes, and on weekends. We will also have more trading volume when there is an overlap between the open outcry and electronic trading times.

As far as binary options are concerned, trading the oil binary options asset will require an understanding of technical analysis but most importantly, the fundamental factors that move crude oil prices. Traders can also trade correlated assets on the binary options platforms using this inter-relationship. Some of the oil binary options correlated assets are the EURUSD, USDJPY and CADJPY forex binary options. In the same vein, some stock binary options can also be traded using crude prices. These are stocks of oil companies such as Lukoil, Gazprom. TOTAL, ExxonMobil, etc.

Oil Binary Options Fundamentals

Crude prices will respond to certain fundamental factors. The most important of these are:

1. The Organization of Petroleum Exporting Countries Production Quota, usually set for member countries at its meetings. OPEC generally allocates production quotas to its member nations as a means of controlling crude prices. OPEC countries account for 60% of the global crude oil supply.
2. In the same vein, the political situation of member nations of OPEC can have a dramatic impact on crude oil prices. The Libyan Civil war caused crude prices to rise almost $40 while it lasted. A similar spike was seen during the 1991 Gulf War. Civil wars and political strife affect a country’s ability to export its products, and this will create a situation of relative scarcity which pushes up prices.
3. Weather factors such as hurricanes in the US Gulf Coast also have a transient effect on crude prices.
4. Chinese GDP and Inflation data: As one of the world’s largest importers and consumers of crude, GDP and Inflation data out of China have now become a relevant determinant of crude prices. These data measure the economic progress of a country. Slow growth will impact a country’s appetite for imported goods, with attendant drop in prices due to demand drop-off. India is also becoming an emerging factor in this regard.
5. Speculative activity on the futures markets, as major consumers of refined products load on large contracts to hedge against future price instability.

Trading Oil Binary Options

The fundamental factors mentioned above will cause the price of the oil binary options asset to go up or down, depending on the play involved. This can be traded quite simply using the Call/Put contract on a typical binary options platform.

In addition, traders can also trade the following correlations to the oil binary options asset:

• The EURUSD moves in a direct relationship with crude prices, due to the inverse relationship between the USD and crude prices. Crude is priced in US Dollars and directly responds to the value of the USD. As a net importer of oil, the US economy and USD are inversely affected by the price of crude oil. So the trader can trade a CALL on EURUSD when the price of the oil binary asset is rising, and trade a PUT when oil price is falling.
• Some stock binary options can be traded with crude oil prices. Oil producing firms like BP, TOTAL, ExxonMobil, Lukoil and Gazprom will see their profits increase when crude oil prices are persistently high. This will shoot up their earnings and provide an opportunity to trade the CALL contract when the earnings reports are increased. The prices of these stock binary assets also respond to intraday price movements of crude oil, and so they also present opportunities to trade these assets on a short term basis.

Chad Simmons

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