Volatile October Comes to a Close

Trading in the volatile month of October came to a close on Friday as new evidence continues to emerge pointing to recessionary conditions in many western nations. The Bank of Japan followed the lead of central banks around the world with its own 20 basis point cut in the borrowing rate, reducing that country's overnight rate to only 0.3%. WTI crude oil continued to pull back from the $70 level as the continuing economic turmoil leads many traders to position themselves for further moves lower in what remains of calendar year 2008.

Producer hedgers continue to look for cheap downside strategies. Using Average Price Options (Asians), the WTI December 2008 $60 puts are trading around only $3.25. That's $3,250 of total premium at risk to be short from the $60 level for the next 60 days. This simple strategy allows unlimited downside protection without the margin calls and volatile daily swings of trading flat price. The long put can be made costless (meaning the hedger need only post margin) by selling the December $80 call. This trade puts zero premium at risk at or below $80.

Singapore, 12:47