Gasoline is the largest single volume refined product sold in the United States and accounts for almost half of national oil consumption. It is a highly diverse market, with hundreds of wholesale distributors and thousands of retail outlets, often making it subject to intense competition and price volatility. Unleaded gas future contracts are one of the largest distillates of crude oil contracts traded at the NYMEX. Unleaded gas future contracts may be the most important energy future of all of the petroleum distillates.

During the Sept. 11 attacks the NYMEX was destroyed but because of the strength and resilience of the futures markets and the exchanges, the unleaded gas future contracts were trading within days of the attacks. This is a testament to the futures markets reliability and integrity.

 The NYMEX Division New York harbor unleaded gasoline future contracts trade in units of 42,000 gallons (1,000 barrels). It is based on delivery at petroleum products terminals in the harbor, the major East Coast trading center for imports and domestic shipments from refineries in the New York harbor area or from the Gulf Coast refining centers.

Along with the unleaded gas futures contracts, options contracts, calendar spread options contracts, crack spread options contracts, and average price options contracts provide a slate of flexible, liquid financial instruments. The contract specifications conform to those for reformulated gasoline, required in many areas for controlling emissions that can adversely affect air quality. To ensure that the terms and conditions of the unleaded gasoline futures contract continue to mirror the cash market, the Exchange maintains close contact with federal and state officials and continues to evaluate changes in the regulations. The Exchange also lists for trading on the NYMEX ClearPortsm trading platform a series of gasoline swap futures contracts based on crack spreads and location differentials. Transactions in these contracts can also be consummated off-Exchange and submitted to the Exchange for clearing through the NYMEX ClearPortsm clearing website.

Unleaded Gasoline Options

NYMEX Division Unleaded Gasoline options provide a flexible means for hedgers (commercials) to achieve price protection while retaining the ability to participate in favorable price moves. The opportunity cost is limited to the premium paid for the option, plus the commissions and fees.

Options Defined

There are two types of options: calls and puts. A call gives the buyer the right, but not the obligation, to buy futures at a specific price (the strike or exercise price) for a specific period of time. A put gives the buyer the right, but not the obligation, to sell futures at a specific for a specific period of time.

Buying a call or a put is similar to purchasing an insurance policy: In return for a one-time up front premium, the buyer obtains protection against the occurrence of a risk. To protect against the risk of a price increase, a hedger would purchase a call, to protect against a price decrease, he would buy a put.

If the price move does not occur, that is, if cash market (spot) prices do not move in an adverse direction, the options buyer forfeits only his premium and is otherwise able to participate fully in any favorable price move.

An options seller (or writer) performs a function similar to that of an insurance company. The seller collects the premium and is obligated to perform, should the buyer exercise the option. If the option expires without being exercised, the options seller profits by the amount of the premium.

Unleaded Gas futures contracts have been used to manage cash market price risk for more than a century in the United States. Hedging allows a market participant to lock in prices and margins in advance and reduces the potential for unanticipated loss.