Nowadays, the ability to profit from energy futures and options is a valuable one. Even amidst the so-called Great Recession, majority of the world's countries utilize crude oil and its by-products and, hence, profits in crude oil futures speculation will never dry up, so to speak. Of course, losses are inevitable, too, since investors and traders must go head to head on betting on the outcome of oil prices.

So, what exactly is a crude oil futures option? Basically, it is the right though not the obligation to call (buy, in layman's terms) or put (sell, in layman's terms) a thousand barrels of crude for a strike price (a certain price determined by the market) by an expiration date.

Take note than a premium must be paid by the buyer for this right although said premium is exclusive of commissions and other related fees. Also, the premium, commissions and fees represent the maximum risk of capital loss the option buyer may sustain in the transaction.

In said transaction, the option buyer hopes for the price of a crude oil future to sufficiently increase before the expiration date so that it can be sold for profit. However, a loss can also be sustained if and when said crude futures drops in price anytime before the expiration period.

Let's take a hypothetical example between John, a buyer, and Jane, a seller. Let's also assume that the current date is the 15th of January 2009 and the contract price for 1000 barrels of oil is $100. John believes that the price of crude oil will increase in two months' time and Jane believes that it will fall in the same period.

John will enter his buy order for a single March oil futures contract at $100 with his broker while Jane will enter her sell order for the same futures also at $100. Both orders will then be routed to the crude oil futures exchange for pairing and execution, thus, obligating both John and Jane to the terms of the contract. Of course, the term "obligating" is used very loosely as indeed there is no obligation, just the right to call or put, as previously mentioned.

It must be emphasized that neither parties are obligated to wait until the expiration period to take the next step in the transaction. Thus, if oil prices rise to $110 in a week and John is willing to liquidate the contract at the point, he will profit by $10 per 1000 barrels. Jane can continue to hold her position until the expiration date, of which her profit and loss will be determined by the rise and fall of crude oil prices.

There are many factors that affect crude oil and, hence, crude oil futures contracts. The present information on crude oil and natural gas supply levels is weighed against past expectations and future forecasts, which then manifests as the degree of price volatility of the market.

Keep in mind, too, that oil futures trading may be a profitable investment venture but it is also very risky. Thus, not all investors are suited for it especially as buying options can and will wipe out the total amount invested.