1. What Are Crude Oil Options?
Crude oil options are financial contracts on MCX (Multi Commodity Exchange of India) that give the right, but not obligation, to buy or sell crude oil futures at a set price (strike) before expiry
- Call options: Right to buy
- Put options: Right to sell
Contract sizes: 100 barrels (standard) or 10 barrels (mini).
2. How They Work
- Underlying asset: MCX crude oil futures price (benchmarked to NYMEX‑WTI)
- Pricing & expiry: Options have fixed premiums, strike intervals typically ₹50, and expiry a couple days before futures
- Settlement: Cash-settled or automatically converted into futures position
3. How to Trade Crude Oil Options
- Open a commodity trading account with an MCX-registered broker (e.g., Zerodha, Sensibull, Enrich)
- Analyze market drivers: global supply-demand, OPEC/Oil inventory reports, geopolitical events
- Pick strategy:
- Buy calls or puts for directional moves
- Sell/write options to collect premiums (higher risk)
- Spreads (e.g., bull/bear spread) to reduce cost/risk
- Place order via your broker’s platform—choose lot size, strike, expiry, limit/market order
- Monitor position: option values are impacted by spot price, volatility, time decay
- Exit or exercise: Sell before expiry to book profits/loss or let it auto-convert to futures
4. Why Trade Oil Options?
- Leverage: Control large exposure with small capital (margin = premium)
- Limited Risk: Max loss limited to premium paid
- Flexibility: Strategize for bullish, bearish, or side-ways markets
- Hedging: Protect against adverse price movements
Risks & Considerations
- High volatility—prices are reactive to global events (e.g., conflicts, OPEC)
- Time decay can erode premium fast
- Complexity—requires skill in strike selection, greeks, risk management
- Speculative classification—taxed differently; consult with a tax advisor
Example Flow
- Search “Crude Oil” in trading platform
- Select option strike/expiry
- Click ‘Buy’ or ‘Sell’, set order type and quantity
- Monitor Greeks and price
- Exit or let it settle on expiry
When to Use Crude Oil Options
| Goal | Strategy Recommendation |
|---|---|
| Profound bullish | Buy Call |
| Bearish market | Buy Put |
| Income generation | Sell options (premium capture) |
| Risk reduction | Use Spreads |
| Hedge futures | Buy opposite side options |
Final Takeaway
- Crude oil options on MCX let you speculate or hedge oil prices with defined risk and strategic flexibility.
- Understand contract specs, market drivers, pricing dynamics, and use prudent risk management.
- Ideal for seasoned traders—but beginners should start small, use demo accounts, or consult advisors first.
