All eyes on IKE

The storm should put even more pressure on refined products and cracks. We have seen cracks widen and volatility move out beyond 60% in RB. Physical players with inventory could sell some calls and collect big premium here.

As a lower risk trade, long inventory heating oil players could buy the Oct Euro heating oil put spread 260-280 for 7 cents or sell a 307 call in combination, making the whole structure zero cost. At-the-money is 293 here.

Gasoline is another story. The Oct-Nov spread is 1650 now down from 2000 today. We have heard that physical gasoline has traded as much as $1.22 / gallon over NYMEX, which means there are some short squeezes in the market. That spread could go out again. Our suggestion would be to own some call spreads for Nov Euro (or Oct Asian), which would not be subject to too much volatility compression. If the refinery complex is down for a few weeks, the compounding effects of low inventory and refinery downtime could have a dramatic effect.