Market Jitters Result in Flight to Commodities

Energy markets rallied yesterday on the back of a flight to commodities from equities. Risky assets, at the moment being anything that is not gold or energy related suffered enormous losses in volatile trading. Weekly US inventory numbers drove crude prices sharply higher as the effects of Huricane's Gustav and Ike are now being quantified. Although draws were largely expected, crude stocks suffered an outsized dip for the second week in a row, down 6.3m million barrels, a reflection of the sharp weekly drop in imports.

Option premiums remain elevated as a result of the sharp market moves. Consumer call spreads will always be a cheap way to gain upside protection, especially in volatile markets. Using Asian options, the WTI Q4 $100/110 call spread can be purchased for an average price per month of about $2.80, or $2,800 of total premium at risk. This call spread can be purchased for zero cost with the sale of the Q4 $88 put.

Singapore, 08:00