Oil is a highly volatile, yet exciting commodity to trade. The opportunities are great but so are the risks. With binary options / digital options, you can take advantage of the high returns oil trading can bring and control your risk levels at the same time.

Oil was the first form of energy to be widely traded on regulated commodities exchanges, where it is bought and sold in standardized contracts. It is also one of the most popular commodities for binary options trading via digital options platforms. With a simple online binary options account, you can call or put binary options on the price of a barrel of Light Crude Oil on the NYMEX future exchange.

Something to keep in mind as you trade binary options is that there are many different factors that can affect the price of oil and other commodities including taxes, inflation and money supply. Other factors like politics, weather, transportation costs and technology also have a strong influence on prices, which is why binary options trading on commodities is so interesting and lucrative.

Oil falls under the category of hard commodities, which refers to commodities that are mined rather than grown. It is one of the most traded commodities among those who trade binary options because of its high level of volatility and price swings. Other commodities under this category are natural gas, gold, silver, copper and rubber – all of which can be traded using binary options/fixed return options.

Those who trade oil binary options are well aware of the significant decrease in prices since the end of 2008. The WTI crude oil spot price fell to $30.28 per barrel on December 23, 2008 – the lowest since the beginning of the recent financial crisis. Prices hovered between $35 – $82 per barrel throughout 2009. What this means for binary options traders is that they have ample opportunities to purchase binary options or digital options that will expire in-the-money more often than not.

For example, let’s look at what happened on this past Christmas Eve. Binary options traders followed closely on December 24, 2009 as oil prices rose due to a larger-than-expected drop in US energy stockpiles and an intense cold snap in the United States – the world’s largest energy consumer. New York’s main futures contract, Light Sweet Crude, jumped $1.38 to $78.05. As a binary options trader, if you were able to predict this price spike you would definitely be in-the-money before the year’s end.

Let’s take a look at how you would take a position on the above oil price movement using binary options. With binary options, you simply “call” if you think the price will rise or “put” if you think the price will fall. On December 24, the price of Light Sweet Crude oil is at $76.67. You have a feeling that as the day draws to an end the price will jump. As a binary options trader, you predict a price increase because just the day before, oil jumped $2.27 to settle at $76.67 a barrel after a US government report showed that crude supplies fell more than twice as much as analysts and binary options traders predicted, for the second week in a row.

So you sign in to your binary options trading account and purchase a $100 call option on the strike price with an end-of-day expiration. Your binary options trading platform offers you a 70% return if the option expires in-the-money. So what does this mean for the binary options trader? At the end of the binary options trading day on December 24, 2009, if the price of crude oil is greater than $76.67, you make a return of $70 plus you receive back the $100 you invested in binary options. If the price of crude oil is less than $76.67, you receive $15 in returns from your original binary options purchase and if the price stays the same, you receive your $100 back. We know now that the price of oil closed at $78.05 on December 24 – so for this binary options example, you would have finished with a $170 return.

Trading binary options on oil can be very lucrative if you stay up to date on the industry trends and follow the political events that affect the volatility of prices. We recommend that you sign up for news alerts, stay on the ball and trade binary options when you see an opportunity to cash in on the price swings.

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