Market Volatility Continues to Surge

Volatility increased across all markets yesterday as the US House of Representatives rejected the proposed $700 billion bail-out package. Gold traded well over the $900 mark as traders sought a safe haven from the increasingly negative outlook from all other major markets. The CFTC released data showing the number of net longs in November WTI crude increased throughout September as the market rallied back towards the $110 level. With yesterday's selloff, expect the pressure to increase on these longs to all head for the door at the same time, possibly forcing the market down further.

Cheap option strategies are the most sensible choice for this turbulent market. Hedgers looking to protect against further downside moves in the next 6 months can find inexpensive protection in the Q408 - Q109 $90/80 put spread for only about $3.20. With the market gyrating more than $5 per day in either direction, a hedge with max exposure of only $3,200 per month begins to look very shrewd.

Singapore Fuel Oil hedgers looking to protect their downside can combine the above strategy with the sale of 180 Fuel Oil Swaps in the WTI/Fuel Oil crack, currently trading around $12.00.

Singapore, 09:18