Decreased Volatility results in Cheaper Consumer Hedging Strategies

Crude oil prices consolidated around the $115 level yesterday despite escalating fighting between Russia and Georgia amidst the oil-rich Caspian region. Possibly below the radar now are increased tensions between Iran and the West over the Middle-Eastern county's nuclear program. Hedge fund short crude positions appear to be both driving the market lower and preventing any sort of rebound. However, with a drop of more than 20% in one month's time, hedger's have been focusing on locking in the current price, whether it be a South American producer buying downside protection or an Asian airline recognizing the need to protect against a possible move higher in the second half of the year.

Option premiums are becoming cheaper as the market adjusts to the $110-120 price range. The October $125 calls are now trading around $3.30, providing unlimited upside protection for the next month if prices rebound. A maximum investment of only $3,300 protects against the many risks we see prevalent in the market today: political, military, weather, and supply and demand.