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Heating Oil Futures and Options Trading
The market for heating oil, also known as No. 2 fuel oil, grew rapidly after World War II, as homeowners and builders switched from the commodity coal.
With the lifting of U.S. price controls on heating oil in the mid 1970's, the New York Mercantile Exchange (NYMEX) began developing a heating oil futures contract and, in 1978, introduced the world's first successful energy futures contract.
Heating Oil accounts for almost 25% of the yield of a barrel of crude, the second largest "cut" of the barrel after gasoline.
Heating oil futures has become one of the premiere distillate contracts in future trading.
In its early years, the NYMEX Division heating oil contract mainly attracted wholesalers and large consumers of heating oil in the New York Harbor area. Soon, its use spread to geographical areas outside of New York and it came apparent that the contract was also being used to hedge diesel fuel, which is chemically similar to heating oil, and jet fuel.
Today, a wide variety of businesses, including oil refiners, wholesale marketers, heating oil retailers, trucking companies, airlines, and marine transport operators, as well as other major consumers of fuel oil, have embraced this contract as a risk management vehicle and pricing mechanism.
visit Crude Oil Futures, Gasoline Futures and Natural Gas Futures.
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Heating Oil Futures Commodity Contract Specifications
Trading Specs
Futures: 42,000 U.S. gallons (1,000 barrels).
Options: One NYMEX Division heating oil futures contract.
Price Quotation
Futures and Options: In dollars and cents per gallon: for example, $0.7527 (75.27¢) per gallon.
Trading Hours
Futures and Options: Open outcry trading is conducted from 10:05 A.M. until 2:30 P.M.
After hours futures trading is conducted via the NYMEX ACCESS® internet-based trading platform beginning at 3:15 P.M. on Mondays through Thursdays and concluding at 9:30 A.M. the following day. On Sundays, the session begins at 7:00 P.M. All times are New York time.
Trading Months
Futures: Trading is conducted in 18 consecutive months commencing with the next calendar month (for example, on January 2, 2002, trading occurs in all months from February 2002 through July 2003).
Options: 18 consecutive months.
Minimum Price Fluctuation
Futures and Options: $0.0001 (0.01¢) per gallon ($4.20 per contract).
Maximum Daily Price Fluctuation
Futures: $0.25 per gallon ($10,500 per contract) for all months. If any contract is traded, bid, or offered at the limit for five minutes, trading is halted for five minutes. When commodity trading resumes, the limit is expanded by $0.25 per gallon in either direction. If another halt were triggered, the market would continue to be expanded by $0.25 per gallon in either direction after each successive five-minute trading halt. There will be no maximum price fluctuation limits during any one trading session.
Options: No price limits.
Last Trading Day
Futures: Trading terminates at the close of business on the last business day of the month preceding the delivery month.
Options: Trading ends three business days before the underlying futures contract.
Exercise of Options
By a clearing member to the Exchange clearinghouse not later than 5:30 P.M., or 45 minutes after the underlying futures settlement price is posted, whichever is later, on any day up to and including the option's expiration.
Options Strike Prices
Twenty strike prices in one-cent-per-gallon increments above and below the at-the-money strike price, and the next ten strike prices in five-cent increments above the highest and below the lowest existing strike prices for a total of at 61 strike prices. The at-the-money strike price is the nearest to the previous day's close of the underlying futures contract. Strike price boundaries are adjusted according to the futures price movements.
Delivery
F.O.B. seller's facility in New York Harbor, ex-shore. All duties, entitlements, taxes, fees, and other charges paid. Requirements for seller's shore facility: capability to deliver into barges. Buyer may request delivery by truck, if available at the seller's facility, and pays a surcharge for truck delivery. Delivery may also be completed by pipeline, tanker, book transfer, or inter- or intra-facility transfer. Delivery must be made in accordance with applicable federal, state, and local licensing and tax laws.
Delivery Period
Deliveries may only be initiated the day after the fifth business day and must be completed before the last business day of the delivery month.
Alternate Delivery Procedure (ADP)
An alternate delivery procedure is available to buyers and sellers who have been matched by the Exchange subsequent to the termination of trading in the spot month contract. If buyer and seller agree to consummate delivery under terms different from those prescribed in the contract specifications, they may proceed on that basis after submitting a notice of their intention to the Exchange.
Exchange of Futures for, or in Connection with, Physicals (EFP)
The commercial buyer or seller may exchange a futures position for a physical position of equal quantity by submitting a notice to the Exchange. EFPs may be used to either initiate or liquidate a futures position.
Grade and Quality Specifications
Generally conforms to industry standards for fungible No. 2 heating oil.
Inspection
The buyer may request an inspection for grade and quality or quantity for all deliveries, but shall require a quantity inspection for a barge, tanker, or inter-facility transfer. If the buyer does not request a quantity inspection, the seller may request such inspection. The cost of the quantity inspection is shared equally by the buyer and seller. If the product meets grade and quality specifications, the cost of the quality inspection is shared jointly by the buyer and seller. If the product fails inspection, the cost is borne by the seller.
Position Accountability Limits
7,000 contracts for all months combined, but not to exceed 1,000 in the last three days of trading in the spot month or 5,000 in any one month.
Margin Requirements
Margins are required for open futures or short options positions. The margin requirement for an options purchaser will never exceed the premium.
Trading Symbols
Futures: HO
Options: OH
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