Crude oil prices were rangebound yesterday in both Asian and New York trading. While the verdict is still out on Hurricane Gustav's ultimate damage tally, structural harm at rigs and refineries appears to be limited. WTI crude is now trading safely below the 200 day moving average of $111.64 as the market attempts to identify the level where demand is restrained but not destroyed.
Option premiums have become increasingly cheaper in the wake of the volatility caused by Gustav. Consumer hedges in particular are looking quite economical for the remainder of 2008. The September through December $115/125 call spread is currently trading around $2.40. That's $2,400 of total premium at risk per month with $7,600 of protection should the market move back above $125 before the year is out. In other words, if only 1 month in the next 4 settles above the $125 level, the trade produces a profit of $400. Not a bad prospect for consumers considering the market is now down almost 30% in just over a month.
Wednesday, September 3, 2008
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