Market Plunge Presents Opportunities

Fundamentals may have taken a back seat for several days as traders attempt to adjust postions amidst a plunge in both commodity and equity markets. Yesterday saw crude oil down more than 35% in only two months time while the dollar seemed to have no support as well. Lost in the economic turmoil was Mend's openly declared "oil war" in Nigeria as a Royal Dutch Shell installation was attacked.

The current drop in commodity markets provides consumers with an excellent opportunity to lock in fuel prices more than 35% off the all-time highs. The WTI Q4 2008 $100/130 call spread can be owned for only $3.00 per month using Average Price Options. This call spread provides a $27,000 payout per month if the market rallies back to $130 with only $3,000 of total risk. The call spread can be made costless by selling the $88 put strip.

Singapore, 08:05

Financial turmoil forces liquidation

Overnight news confirmed the intention to sell ML to Bank Of America while Lehman Brothers filed for Chapter 11 to protect its' solid business units. AIG also suffered pressure to sell without any back up financing in place. The US fed is standing firm regarding no bail-out or back stop facilities.

While financial markets are under pressure, there may be some forced liquidations in the markets from ML customer or even index funds. Refined products are down more than 20 cents this morning, providing excellent opportunity for heating oil buyers to lock in a Q1 300-350 call spread for 13 cents/gallon. Crude oil volatility has popped as high as 55% for Wed expiry. There is plenty of room for the market to move $5 by Wednesday.

NY, 0900