Volatility holding - Don't wait for the unexpected

When we look at volatility levels, it is often difficult to decide when it is well offered versus how cheap it might get. We have seen volatility decrease lately (to the low 40s), but the fact is, it could go lower. In these situations, using spread strategies continues to rule for buy and hold trades. For example, the Q4 115-125 call spread (Asian) is offered at $2.65. This is a low cost hedge for the remainder of the year for consumers. On the other hand, short term strategies or long physical (wet barrel) or inventory hedge players are better off buying outright options (in this case puts) to protect against a strengthening USD that might put more pressure on crude down to $100 or below.

Short term, we see potential risk from Hurricane Ike. This may put pressure on crack spreads and could also give some support to NG, which has experienced a very bearish market, with volatility in. We are suggesting a long futures strategy in NG with a put stop-loss for consumers.

It is always better to hedge when the market is stable and fear has subsided.

NY, Fri 430 PM EST.