One reason options are my favorite energy speculation is that when moves are big and fast, they deliver far greater profits than energy stocks, as shown in the Kuwait War Profits chart. Expect this to happen again. This is because refiners and end users bid up nearer-term contracts to secure scarce supplies for current needs, while staying hopeful that lower prices would return later on. The added volatility in closer contracts causes options on these contracts to profit faster than those on the slower moving, distant contracts. But the distant options have more staying power.
Strips fill both needs .
To construct a strip, you buy a series of call options on crude oil future contracts every six months in the future . December 2001, June 2002, and December 2002. The options allow you to participate in the changing value of the underlying futures contract for 1,000 barrels of West Texas Intermediate crude oil. The right is good until the expiration of the December 2002 option in mid-december 2002, so the strategy has plenty of time to work. Dynamic Price Play.