*** CME/NYMEX will be launching Gasoil options (Asian, American & European style) on Clearport this weekend. Hudson Capital Energy will be making markets and providing liquidity and hedging strategies on these options 24hours/day with our offices in Singapore and NY shortly. Fuel Oil and JetKero options will also follow within a few weeks.
Commodity and equity markets reacted swiftly yesterday to the US Federal Reserve lowering interest rates half a point to 1%. However, the sharp move higher may soon prove fleeting as the move by the Fed is seen as largely symbolic and will have little to no effect on the global economic slowdown and the resulting drop in demand for raw materials. WTI crude oil pushed towards $70 before backing off to below $68.
Implied volatility softened in early trading yesterday, allowing downside producer hedgers several compelling reasons to re-enter the market. As the crude price rallies, long put strategies will of course become cheaper. Second, with implied volatility softening, option premiums will decrease even further. In early Asian trading this morning, the WTI December 2008 $65/45 put spread was offered at $4.25. The put spread was also quoted against the December $90 calls. This 3-way enables the downside or bearish hedger to purchase the $65/45 put spread and sell the $90 call while only putting $2.00 of premium at risk. That's a maximum loss of only $2,000 should crude oil stay below $90 and above $65 in December. Max gain on the trade would be $18,000 per contract.
Singapore, 08:30
Wednesday, October 29, 2008
Expected Fed rate cut and bullish stats
A solid rally in all energy products followed the Wednesday stats, which were slightly more bullish than expected. The market also is digesting the likelihood of OPEC taking more aggressive action in the near future. We know that we have cracked some higher cost producers threshold levels, which indicates some supply tightening in addition to OPEC. That said, some fresh data is pointing to lower demand which has led the market over the last few weeks. Volatility in crude oil has come in sharply with this rally, providing an opportunity to buy puts for those who remain bearish near-term. The Dec American $60 Put was offered $2.10/bbl, providing reasonable insurance for the next month. The costless crude collar was offered with the $60 put financed by the $76 call.
Consumers have been aggressively looking to hedge consumption for 2009 and also 2010. The call spread strategy remains attractive as volatility has yet to subside. The Fed rate cut was expected and the US equity markets appeared equally uncertain on the close.
New York, 5pm EST
Consumers have been aggressively looking to hedge consumption for 2009 and also 2010. The call spread strategy remains attractive as volatility has yet to subside. The Fed rate cut was expected and the US equity markets appeared equally uncertain on the close.
New York, 5pm EST
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