Traders Eye Hurricane Ike and Opec Quotas

Traders remained focused on Hurricane Ike's unpredictable passage through the Gulf of Mexico as well as remarks eminating from an Opec advisory group as to how the cartel will proceed on the quota issue at Tuesday's meeting. Expectations are for the group to publicly hold back from adjusting the outright quota while paring back production to the original quota level. Opec has been watching nervously as crude inventories continue to rise against a backdrop of slowing economic growth.

Production quota levels remaining in place combined with the potential for the remainder of the hurricane season to proceed without disaster have led us to take a closer look at producer strategies. Using Asian options, the September through December $100/85 put spread provides $15 of downside protection per month with only $2.50 of premium at risk. That's a combined $60,000 per contract of total downside protection with $10,000 of maximum risk.