Sing Fuel Oil Implied Volatility Softens

Gloomy economic data has combined with large inventory builds to maintain heavy downward pressure on energy markets. However, demand can be expected to appear in the Northeast US as an already cold winter turns doubly frigid. Aggressive production cuts from Opec may do no more than keep the bottom from falling out of the energy markets. The unfortunate bank-Armageddon state of affairs looks set to continue with nationalization rumours swirling around RBS and possibly a large American bank.

The softening of implied volatility and thus option premiums continues to be the catalyst for hedgers to re-enter the market. For more than two weeks, Feb ’09 Sing Fuel Oil 180 cst has been trading in a tight range between $240 and $260 with only a short break-out push towards $280 before quickly falling back below $260 again. This type of consolidation allows for less risk in consumer hedging strategies such as buying costless collar strips. The Feb-July $280 call strip can be purchased for zero cost by selling the $235 put. Similarly, for consumer hedgers looking for slightly less volatility, the Feb-July $300 call strip can be purchased for zero cost by selling the $223 put.

Singapore, 09:00