Given the strong sell off, volatility remains extremely firm (81.5% in Jan WTI). With this in mind, long put spread strategies or 3-way strategies using a short call are attractive for inventory hedgers.
For those with long physical inventory, consider the 45-55 put spread in Dec WTI (Asian) which is currently valued at $2.60/bbl. This offers good leverage for low up front premium.
For those that can tolerate margin swings, consider the same put spread with a short 69 call for zero cost. This three way position captures the high volatility and offers some downside protection while creating a short position $9 higher than the current market.
Thursday, November 13, 2008
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