Comment by KellyCriterion
17 hours ago
> There was even a brief moment when the price of an oil barrel went negative
More accurate: The price for an _option_ to buy/sell oil was negative, not the price of the barrell itself.
17 hours ago
> There was even a brief moment when the price of an oil barrel went negative
More accurate: The price for an _option_ to buy/sell oil was negative, not the price of the barrell itself.
No, the price of a contract for future delivery to a specific location went negative just before the delivery date, at a time when there was almost no unoccupied oil storage nor transport capacity at said location.
In that circumstance you might sell your right to some oil for almost nothing rather than deal with the consequences of accepting it. You might even pay someone to take it off your hands.
Options is “right but not obligation”. Physically settled futures are an obligation at maturity.
Thanks for correction, that is true!
(Both instruments are not that popular in my country, so my daily language is to put both of them as synonym, while they are different animals in some details)
There are cash settled futures there are closer to options in that they’re purely financial, but even those don’t have optionality at maturity.
Generally a dangerous thing to have as synonyms regardless, otherwise you end up with a coal barge in the east river https://thedailywtf.com/articles/special-delivery
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How could the option price go below 0? Why couldn't someone just not exercise it in that case?
Unlike equity options, commodity future options are typically written with european style exercise rules.