Crude options volatility subsided after spiking into the high 60s%, which indicates a fear factor equivalent to stock volatility index 40+%, only equal to major market events such as 9/11 or serious crashes. Crude players globally are scratching their heads to come up with a strategy short term to hedge cargoes and inventory. The Q4 110 Asian crude call could be had for $3/bbl, which seems to be a reasonable premium given what has been happening. The zero cost hedge for that period would be the 89/110 (Collar).
The inventory stats posted today showed unusually bearish numbers in RBOB. We feel they underestimate RB inventory and likely will bounce.
With the potential for $10 moves in crude oil, options are still the best tool. Selling volatility as part of an overall strategy (part of a 3 way) may not be bad as volatility is likely to subside.
The US Senate is set to vote this evening (730 pm EST) on the new package. The US House of Representatives will vote on the proposal Friday. Meanwhile, credit markets remain in limbo.
NY - 1/10 502pm EST
Wednesday, October 1, 2008
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