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Ethanol Futures and Options Trading

 Free Ethanol Futures Trading eGuide

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Historically, the futures World Sugar No. 11 market has produced ICE Futures U.S.'s largest total annual volumes. In 2003, for example, total sugar futures and options accounted for more than 36% of all the contracts traded on the ICE exchanges. In the first quarter of 2004, the ICE world sugar established impressive new all-time daily and monthly total volume records.

The global importance of the sugar trade provides a critical basis for the establishment of the ethanol futures market. The size of the new ethanol contract (7,750 gallons) represents a close approximation of the amount of ethanol that can be produced from 112,000 pounds of raw sugar (the size of the Sugar No. 11 futures contract). The ethanol (anhydrous, undenatured alcohol) deliverable against the contract does not specify sugar-based ethanol. The contract treats all ethanol as ethanol and makes no distinction, very much in the same way that the world Sugar No. 11 contract makes no distinction between sugar produced from beets or cane.

Price volatility, price risk, multiple buyers and sellers, a quantifiable commodity with standardized characteristics, reliable spot market price history are some of the features necessary to build a futures and options market. The price volatility and price risk are apparent in volatility and spot price statistics for ethanol.

The price of ethanol has declined on the world market and stabilized on the domestic front. Realtime and delayed (30-min.) ethanol futures and option prices can be found at ICE Futures U.S. ( www.theice.com ).

With so many variables at work in the pricing of ethanol, the presence of a price benchmark is critical to the growth and economic stability of the ethanol industry. ICE Futures U.S. has created a world ethanol futures and options marketplace to bring some order to this unpredictable pricing picture.

The ethanol futures contract calls for Free-on-Board (FOB) vessel delivery of bulk liquid ethanol from any one of 9 countries of origin. The price is quoted in cents/gallon with a minimum price fluctuation of one/tenth cent/gal. (equivalent of $7.75 per contract). Contracts are listed for February, April, June, September and November. The ethanol must be biomass-derived, undenatured, anhydrous ethanol at 60 degrees Fahrenheit. Regular options are listed for each contract month. Option strike prices will be listed in five cent increments.

A growing industry faces a growing price risk and the ICE ethanol futures and options market can serve all levels of the marketing chain in a number of ways. Any of the following market participants, exposed to price risk, could utilize the futures and options market:

Ethanol producers; ethanol processors and dehydrating plants; energy trading companies; ethanol merchandisers; oil refiners, gasoline blending and marketing firms; sugar producers that produce ethanol; and chemical firms that produce synthetic ethanol.

With such a large number of fundamental factors influencing pricing for ethanol, the presence of a price auction is critical. The Exchange represents a regulated and orderly marketplace in which price is the primary commodity being bought and sold. Buyers and Sellers with price risk come together with equal access to the market to negotiate the best price and they are joined by speculators/investors that trade from both the buy and sell side and add important liquidity to the price discovery process.

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Ethanol Futures Contract Specifications

Ethanol Futures Contract 

Calls for FOB vessel delivery of bulk liquid ethanol from any of nine countries of origin.

Trading Unit: 7,750 U.S. gallons

Trading Hours: 8:50 AM to 12:05 PM New York Time.

Price Quotation : Cents per gallon

Contract Months: February, April, June, September and November

Ticker Symbol: XA

Minimum Fluctuation: 1/10 cent/gal., equivalent to $7.75 per contract.

Daily Price Limits: None

Position Limits: 1,000 futures equivalent contracts net on the same side of the market in all months combined or in any one month. Exemptions may apply for hedge, straddle and arbitrage positions. Contact the Exchange for more information.

Grade: Biomass-derived, undenatured, anhydrous ethanol at 60 degrees Fahrenheit.

Countries of Origin: The Bahamas, Brazil, Costa Rica, El Salvador, Guatemala, Jamaica, Nicaragua, Panama and the United States.

Delivery Points : A port in the country of origin or in the case of landlocked countries, at a berth or anchorage in the customary port of export. Subject to minimum standards established by the Exchange's rules.

Last Trading Day: Last business day of the contract month.

Notice Day: First business day after last trading day.

Ethanol Futures Options Contract 

Confers to buyer the right to buy (in the case of a call) or sell (in the case of a put) one Ethanol futures contract.

Trading Unit: One Ethanol futures contract.

Trading Hours: 8:50 AM to 12:05 PM New York Time

Price Quotation: Cents per gallon

Contract Months: February, April, June, September and November

Ticker Symbol: XA

Minimum Fluctuation: 1/10 cent/gal., equivalent to $7.75 per contract.

Daily Price Limits: None

Position Limits: 1,000 futures equivalent contracts net on the same side of the market in all months combined or in any one month. Exemptions may apply for hedge, straddle and arbitrage positions. Contact the Exchange for more information.

Strike Price Increments: Five cents/gallon.

First Trading Day: First trading day after last trading day for any expiring option, if trading has begun in the related futures contract; otherwise the first trading day after the related futures contract begins trading.

Last Trading Day: The last trading day for any regular option month shall be the second Friday of the calendar month.

Expiration Date/Time: 9:00 PM New York Time on last trading day. Notification of intention to exercise must be made by an options holder to carrying member firm by 3:00 PM that day.

Contract specs subject to change. See Also: Crude Oil, Heating Oil, Natural Gas, Unleaded Gasoline, Gasoline Blendstock