Market Consolidation Continues

Energy prices rallied ahead of Wednesday's U.S. oil inventory numbers. Gasoline stocks are expected to show a slight draw while crude supplies may register a modest build. Increasing tensions between Russia and Nato over continued military activity in Georgia, as well as resurgent fears over tropical storm Fay in the Gulf of Mexico served to pull oil off its recent lows. Consolidation between $112 and $118 continues.

As market participants become increasingly unsure as to crude oil's next move, option premiums continue to cheapen. Unlimited upside protection for the remainder of the 2008 calendar year can be had for Zero Cost by offsetting the purchase of the WTI September through December $120 calls by selling the $113 puts in the same tenour. Using Average Price Options, it is possible to gain protection above $120 for the remainder of 2008 with no premium at risk above $113.