Ethanol Futures Trading Basics

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Contents

Ethanol Futures Trading Basics

Ethanol futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of ethanol (eg. 29000 gallons) at a predetermined price on a future delivery date.

Ethanol Futures Exchanges

You can trade Ethanol futures at Chicago Board of Trade (CBOT).

CBOT Ethanol futures prices are quoted in dollars and cents per gallon and are traded in lot sizes of 29000 gallons .

Exchange & Product Name Symbol Contract Size Initial Margin
CBOT Ethanol Futures
(Price Quotes)
EH 29000 gallons
(Full Contract Spec)
USD 6,480 (approx. 14%)
(Latest Margin Info)

Ethanol Futures Trading Basics

Consumers and producers of ethanol can manage ethanol price risk by purchasing and selling ethanol futures. Ethanol producers can employ a short hedge to lock in a selling price for the ethanol they produce while businesses that require ethanol can utilize a long hedge to secure a purchase price for the commodity they need.

Ethanol futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable ethanol price movement. Speculators buy ethanol futures when they believe that ethanol prices will go up. Conversely, they will sell ethanol futures when they think that ethanol prices will fall.

Learn More About Ethanol Futures & Options Trading

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Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

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Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Gasoline Futures Trading Basics

Gasoline futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of gasoline (eg. 50 kiloliters) at a predetermined price on a future delivery date.

Gasoline Futures Exchanges

You can trade Gasoline futures at New York Mercantile Exchange (NYMEX) and Tokyo Commodity Exchange (TOCOM).

NYMEX Gasoline futures prices are quoted in dollars and cents per gallon and are traded in lot sizes of 42000 gallons (1000 barrels).

TOCOM Gasoline futures are traded in units of 50 kiloliters (13210 gallons) and contract prices are quoted in yen per kiloliter.

Exchange & Product Name Symbol Contract Size Initial Margin
NYMEX Gasoline Futures
(Price Quotes)
RB 42000 gallons
(Full Contract Spec)
USD 9,450 (approx. 20%)
(Latest Margin Info)
TOCOM Gasoline Futures
(Price Quotes)
50 kiloliters
(Full Contract Spec)
JPY 210,000 (approx. 13%)
(Latest Margin Info)

Gasoline Futures Trading Basics

Consumers and producers of gasoline can manage gasoline price risk by purchasing and selling gasoline futures. Gasoline producers can employ a short hedge to lock in a selling price for the gasoline they produce while businesses that require gasoline can utilize a long hedge to secure a purchase price for the commodity they need.

Gasoline futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable gasoline price movement. Speculators buy gasoline futures when they believe that gasoline prices will go up. Conversely, they will sell gasoline futures when they think that gasoline prices will fall.

Learn More About Gasoline Futures & Options Trading

You May Also Like

Continue Reading.

Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Keys to Trading Corn Futures

Nathan Benn/Corbis Documentary / Getty Images

Trading corn futures is similar to corn farming, in that they both must pay close attention to seasons and the weather. Trading corn futures can be fairly subdued during the winter months, while the summer months are not for the faint of heart. Corn is planted in the spring and harvested in the fall, and this growing season is when most of the action in corn prices takes place.

The movement during the winter months usually stems from demand and how much of the harvested crop is sold every week. During the summer months, corn traders carefully watch every updated weather report for any potential weather problems in corn-growing areas.

Planting Intentions Report

In spring, the USDA’s Planting Intentions report kicks off planting season for traders. This report is released at the end of March. The Planting Intentions report tends to set the tone for the market for the season. It reveals the amount of acreage that farmers intend on planting for each crop. The fewer acres planted, the lower the chance of a large crop. Analysts will take the number of acres and multiply it by a trend yield to get the expected size of the crop for the season to project the entire size of the crop.

Demand is the next part of the corn futures valuation equation. About 40% of the corn crop goes to ethanol production. Most of the remainder goes to feed livestock like cattle, hogs, chickens, and other animal protein. Perhaps surprisingly, only a small portion goes to actual human consumption. Therefore, it is more important to monitor the price of crude oil and gasoline, which determines the demand for ethanol. A cheap corn price while the price of crude oil is high, for example, can lead to an increased demand for ethanol.

The USDA Report

The USDA releases an export report every Thursday, which details the demand for corn exports. A strong export market will often help corn prices move higher. It is also advisable to monitor the price of corn from other exporting countries. If the price of U.S. corn is much higher than other competing countries, then the chances for a strong export market will diminish.

The summer months are when trading corn futures takes on another dimension. The high price for corn is often set in late June or August. This is mostly due to weather scares that happen during the height of the growing season, at a point when crops are most vulnerable. Extreme heat and droughts in the Midwest are the biggest fear for farmers and corn traders.

The Largest Corn-Producing States

Mid-to-late July is when corn goes through its critical pollination phase. Corn needs moisture and moderate temperatures at this stage to ensure a healthy and high-yielding crop. Extreme heat (roughly 100 degrees or more) and dry soil will damage crops, leading to lower yields. Crop damage causes the price of corn to rise.

The main states to watch for weather reports are Illinois, Indiana, Iowa, Nebraska, and Ohio. These are the largest corn-producing states. Pockets of extreme weather regularly affect smaller regions, but there are occasionally widespread instances of drought and heatwave—causing the price of corn to skyrocket.

Luckily, many bad weather reports don’t play out under a worst-case scenario, and little material damage is done to the overall crop. The market will often move higher briefly, only to return to a lower price once the fear of crop damage subsides. More often than not, it is a good idea to look for selling opportunities during the summer months on these rallies.

How the Market Is Affected by Problems with Corn Crops

Every couple of years, the fears (or realities) of crop damage result in price increases that can be explosive. In 2020, a drought took the price of corn to an all-time high.

Corn has a seasonal tendency to hit peak prices during late June or early July. When there is a serious problem with a corn crop, the market tends to panic, and that can push the peak prices even higher. However, demand tends to fall substantially when prices rise to an extreme. It is the market’s job to find a price that will stifle demand and ration supplies.

By contrast, corn prices often hit their lows around harvest time—usually in November. Harvest season is when the largest supplies are available and many corn farmers are selling their cash crops. After that, during the winter months, corn prices tend to have less volatility. Exports and demand are the main factors for corn prices during those relatively calm months.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

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