The Chicago Mercantile Exchange (CME) is a global leader in the trade of derivative products. One of the CME’s most popular offerings is West Texas Intermediate (WTI) crude oil. Listed as a standardized futures and options contract, WTI is the world’s benchmark for the trade of light sweet crude.
For aspiring energy traders, understanding WTI crude oil contract specifications is imperative. In this blog post, we’ll break down the trading essentials for these exciting derivative markets.
CME Futures and Options WTI Crude Oil Contract Specifications
In the realm of active trading, WTI crude oil futures and options are exceedingly popular products. No matter whether you’re interested in speculating on price movements or hedging risk, CME WTI futures and options can help.
WTI Crude Oil Futures
West Texas Intermediate futures are an excellent barometer for the global oil trade. First launched by the New York Mercantile Exchange (NYMEX) in 1983, WTI futures are the go-to derivatives product for the trade of light-sweet crude oil.
In March 2008, CME Group acquired the NYMEX and management of WTI crude oil. With a robust average daily trading volume of nearly 1.2 million contracts and open interest upward of 2 million contracts, this CME listing offers the utmost in liquidity. Here are the WTI crude oil contract specifications per the CME:
| Symbol | CL |
| Availability | CME Globex |
| Quantity | 1,000 barrels |
| Pricing | U.S. dollars and cents per barrels |
| Tick Size | 1 tick = $0.01 per barrel |
| Tick Value | 1 tick = $10.00 |
| Settlement | Physical delivery |
| Listed Contracts | Contracts are listed monthly for the next 10 calendar years and two months |
| Expiration | Trading terminates three business days before the 25th of the contract’s preceding calendar month |
WTI Crude Oil Options
A WTI options contract gives the holder the right—but not the obligation—to buy or sell a specified quantity of crude oil at a predefined price on some forthcoming date in time. Options for WTI crude oil are known as “futures options” because WTI futures is the basis for the contract’s valuation.
Here are the WTI crude oil contract specifications for options:
| Symbol | LO |
| Availability | CME Globex |
| Quantity | 1,000 barrels |
| Pricing | U.S. dollars and cents per barrels |
| Minimum Price Fluctuation | $0.01 per barrel = $10.00 |
| Settlement | Physical delivery |
| Listed Contracts | Contracts are listed monthly for the next 10 calendar years and two additional months |
| Expiration | Trading terminates seven business days before the 26th of the month prior to the contract month |
Compared to standard futures, options contracts are a bit more involved. Here is a brief primer on crude oil options basics:
- Strike price: Strike price is the price at which the option may be bought or sold at expiry.
- Call: A call option gives the holder the right to buy WTI futures at strike on some forthcoming date in time.
- Put: A put option gives the holder the right to sell WTI futures at strike on some forthcoming date in time.
- Buy: When you buy WTI calls or puts, you pay a premium for a bullish (call) or bearish (put) position in the market. Risk is limited to the premium paid, and profits are potentially unlimited.
- Sell: When you sell WTI calls or puts, you receive a premium for “writing” the contract. Revenue is realized from the sale, but your risk is potentially unlimited.
For options traders, the important WTI crude oil contract specifications are quantity and strike price. As the number of contracts bought or sold increases, market exposure and risk grow.
Also, the location of strike relative to WTI’s current price is vital to the trade’s success. Contact values hinge on the relationship of market price to strike. In-the-money (ITM) and at-the-money (ATM) contracts typically feature lower assumed risk and higher premiums than out-of-the-money (OTM) contracts.
Putting WTI Crude Oil Futures and Options to Work for You
The first step in trading any market successfully is understanding the basics. For energy traders, having a working knowledge of WTI crude oil contract specifications for futures and options is essential.
