Energy markets continued their decline Friday as October WTI crude traded below $106 for the second time in a week. Traders are now focused on the medium-term trend line of approximately $95, which would signal a drop of more than 35% from highs reached in early July.
Downside protection remains cheap as option volatility has decreased in the rangebound trading as of late. The September through December $105/90 put spread strip is currently trading around an average monthly price of $3.90 using Asian options. With protection of $11,100 per month on a move below $90, this producer hedge provides protection for the remainder of the 2008 calendar year.
Sunday, September 7, 2008
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