Energy markets were volatile on thin volumes yesterday before settling close to unchanged. Market consolidation continues in crude oil between the $112 and $118 levels due to hurricane threats in the Gulf of Mexico balanced by hedge funds continuing to increase short positions. Tropical storm Fay appears at this point to be a non-event in oil production terms, however the hurricane does serve as a reminder that external factors can raise volatility without a moment's notice.
The lack of movement in the last two trading sessions has served to temporarily decrease option premiums, thus making consumer as well as producer hedges look much more attractive. A WTI crude oil $20 price ceiling from the $130 level to the $150 level for the entirety of 2009 can now be locked in for Zero Cost by selling the $85 put in the same tenour. With no premium at risk above $85, this trade locks in $20 of protection above $130.
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Monday, August 18, 2008
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