Spread Example: Crude Oil

A position in Crude Oil

This example looks at trading on the price of Crude Oil futures using a Spread contract and holding the position until expiry later in the day.

Which contract?

It is 8:30am ET. You think that the price of Crude Oil is going to rise during the day and decide to buy the Spread contract on Nadex. You check the details of the Crude Oil contract and note the following:

  • Expiration: 2:30pm ET, same day
  • Underlying market: NYMEX* Crude Oil Futures
  • Floor: 60.00
  • Ceiling: 70.00
  • Tick Size: 0.01
  • Tick Value: $1

Opening the trade

You log into the Nadex platform and see that 8 contracts of the Crude Oil Spread are available to buy at a level of 65.48. You enter an order to buy 2 contracts at that price and are promptly filled.

The Tick Value for this and all Spread contracts is $1, which means a price movement of 1-point is worth $1 (per contract). A "point" is defined as the tick size, which is $0.01 for Crude Oil. So each $0.01 movement in Crude is worth $1 per contract.

The contract has a Floor at 60.00, which is the minimum level at which it can be settled, and a Ceiling at 70.00, which is the maximum level at which it can be settled. The contract settling at the Floor level represents an adverse movement of 5.48 (65.48 – 60.00) from your opening level, or 548 points (as $0.01 price movement = 1 point). The contract settling at the Ceiling represents a favorable movement of 4.52 (70.00-65.48) from your opening level, or 452 points.

So, the most that you could possibly lose on this trade is: 2 contracts x $1/point x 548 points = $1096. You would need this much in your account, plus any trading fees, in order to open the position.

Expiry and settlement

You hold the position for the rest of the day, until it expires at 2:30pm. 

The Expiration Value is calculated from a set of NYMEX* Crude Oil Futures trade prices as $66.89, and shortly afterwards the Nadex Spread contract is settled at 66.89.

Note: When you open a position, you do not have to hold it until expiry. You can log into the platform and enter an order to close, or partially close, your position at any time until expiry.

Calculating profit/loss

You bought the contract at 65.48 and it was settled at 66.89. This is a gain of 141 points. Each point is worth $1 per contract, so you have made a trading profit of: 2 contracts x 141 points x $1 = $282.

To calculate the overall result, you will also have to take into account any trading and settlement fees. And, of course, if the underlying market had moved against you, then you would have made a loss instead of a profit.

 

*NYMEX is a registered service mark of the New York Mercantile Exchange, Inc. Nadex, Inc. is not affiliated with the New York Mercantile Exchange, Inc. and neither the New York Mercantile Exchange, Inc. nor its affiliates, sponsor or endorse Nadex, Inc. or its products in any way.