Ask a Broker

ISSUE 503 | MARCH 2006

This month, Lind Plus Senior Market Strategist Matt Krupski discusses how individual investors might approach trading the energy markets, in a way that's affordable.

Q: I am interested in trading the energy markets but the large contract sizes frighten me. Is there another way to gain exposure to these markets without posting the large margins these contracts require?

A: Lind Plus Senior Market Strategist Matt Krupski answers:

The volatility in the energy markets has attracted numerous speculators recently. This activity has brought frequent opportunities, but the large contract sizes have prevented some smaller investors from trading these products. However, the New York Mercantile Exchange has recently added a slate of mini-sized "miNY™" energy futures that make the energy markets more accessible to smaller account holders. The NYMEX miNY™ crude oil, heating oil and gasoline contracts are electronically traded futures contracts that are half the size of the standard contract. So, a $1 move in light sweet crude (from $62/barrel to $63/barrel for example) represents a $500 change in value in a miNY™ contract versus $1,000 in a standard contract, and a $0.01 move in unleaded gasoline or heating oil (from $1.75/gallon to $1.76/gallon for example) represents a $240 change in value of the miNY™ contract versus $420 in the standard contract. In natural gas, the miNY™ futures contract is 25 percent of the value of the standard contract. So a $0.1 move in natural gas (from $7/bcf to $7.1/bcf for example) represents a $250 change in the value of a miNY™ contract versus $1,000 in the standard contract. The margins on these miNY™ contracts are reduced proportionally as well.

In addition to these smaller-sized contracts, options are a great way to gain exposure to these markets. Option strategies can be constructed to give you unlimited exposure to the markets, with clearly defined risk.

Please remember futures and options trading carries considerable risk and may not be suitable for every investor. Please feel free to contact me to learn more about these markets and for personalized strategies based on your individual risk tolerance.

Matt Krupski is a Senior Market Strategist at Lind Plus. He can be reached at 877-847-3034 or via email at mkrupski@lind-waldock.com.

Kristina Zurla Landgraf is editor of Lind eWire. She can be reached by email at editor@lind-waldock.com.

Futures trading involves substantial risk of loss and is not suitable for all investors.

Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.

© 2006 Lind-Waldock, a division of Man Financial Inc. All Rights Reserved.