Energy Derivatives

The futures market involves buying and selling options related to some underlying asset. The underlying asset could be a stock, or a bond, or it could be a commodity.

So...you have an option to buy 5,000 bushels of corn at $3.75 per bushel. Those options are called derivatives. If the underlying asset relates to energy, then you're dealing with [suspenseful music plays]...an energy derivative.

The most famous energy derivatives deal with oil prices. Anytime you hear oil prices quoted (if someone says, "crude trading is at $58 per barrel," for example), that's usually a derivative price. The oil market largely consists of the buying and selling of these options.