Options are divided into two classes - calls and puts. Heating Oil call options are purchased by traders who are bullish about heating oil prices. Traders who believe that heating oil prices will fall can buy heating oil put options instead.

Buying calls or puts is not the only way to trade options. Option selling is a popular strategy used by many professional option traders. More complex option trading strategies, also known as spreads, can also be constructed by simultaneously buying and selling options.

Compared to the outright purchase of the underlying heating oil futures, heating oil options offer advantages such as additional leverage as well as the ability to limit potential losses. However, they are also wasting assets that has the potential to expire worthless.

Additional Leverage
Compared to taking a position on the underlying heating oil futures outright, the buyer of a heating oil option gains additional leverage since the premium payable is typically lower than the margin requirement needed to open a position in the underlying heating oil futures.

Limit Potential Losses
As heating oil options only grant the right but not the obligation to assume the underlying heating oil futures position, potential losses are limited to only the premium paid to purchase the option.

Flexibility
Using options alone, or in combination with futures, a wide range of strategies can be implemented to cater to specific risk profile, investment time horizon, cost consideration and outlook on underlying volatility.

Time Decay
Options have a limited lifespan and are subjected to the effects of time decay. The value of a heating oil option, specifically the time value, gets eroded away as time passes. However, since trading is a zero sum game, time decay can be turned into an ally if one choose to be a seller of options instead of buying them.