Consumer Protection Strategies

Energy markets continued to push lower Friday as December RBOB unleaded gasoline traded below $1.00 for the first time in two years. January WTI crude oil settled under $50, marking a fall of almost $100 in only 4 months. While a protracted global recession will continue to hamper demand well into 2009, supply-side problems that originally pushed oil towards $150 have not disappeared. Thus, it is imperative for consumer hedgers to take advantage of the myriad of bargains in the highly liquid WTI options market.

Using Average Price Options (Asians), the WTI 2nd half of 2009 $85 call is currently trading around only $3.25. That's maximum exposure of only $3,250 per 1000 barrels/month to be long at $85 for every month from July 2009 through December 2009. Even cheaper, the $85/105 call spread strip in the same tenor has been trading around $1.50. With max exposure of $9,000, this trade has a potential payout of $111,000 should crude move back above $105 in the second half of 2009.

For Bunker Traders short physical and looking to buy the Singapore 180 or 380 swaps, cheap downside protection can be had by partnering the long swaps with the purchase of the American-style January 2009 $35 puts for only about $400 per 1000 barrels. Crude need not trade below $35 for the puts to provide protection against long swaps, any move lower in the next 2 weeks will result in an increase in value of the puts, partially offsetting any losses from the long swaps.

Singapore, 21:00