Consumer Hedges in Focus after Bullish Data Release

Energy markets rallied yesterday following bullish U.S. inventory data showing a decline in crude stocks of 400,000 barrels. The surprise drop is indicative of the impact of hurricanes in the fragile Gulf region, as much of the blame for the declining stocks is placed on tropical storm Edouard for disrupting imports. US refiners have also been producing less product as their margins continue to shrink; maintenance programs are expected to continue well into autumn of this year. The end result was a rally of more than $4 in front-month WTI crude.

Upside consumer hedge strategies continue to remain cheap, as hedge funds and short-term traders focus on the 200-day moving average lurking on the downside. Protection from further moves higher can be found in the January through June $130 / 140 call spread for $2.40. For an average price of only $2,400 per month, this trade pays $7,600 of upside protection. The hedge can be mated with the $83 put to make the entire trade zero cost, thus providing $10,000 of upside protection.