Hudson Capital Energy is now making markets in Nymex cleared Sing JetKero Asian-style options. The ability to create and price structures such as Costless Collars in just seconds during Asian trading hours will help us provide Airlines and interested hedgers with enormous liquidity in this once opaque OTC-only market. This note is part of a Singapore Products Report our group will be distributing twice per week to possible counterparties who may be interested in trading Sing JetKero options.
Singapore JetKero swaps rebounded in late December after falling from highs of greater than $180 per barrel during the summer. The February contract bounced off the $55 level and later built support at $60, after hitting this level twice (the second week of December and again late last week). Looking further back along the contango futures curve, August09 bottomed out just below $65 and looks to be building support around the $70 level. It is this consolidation (not only in JetKero, but also in similar regional products markets) that has resulted in a decrease in implied volatilities, thus making option structures more attractive.
Fiscal stimulus in China will eventually impact consumer demand, increasing travel and therefore JetKero demand. The same is true in both the United States and Europe. Airlines looking to protect their fuel requirements for the remainder of 2009 can look to the Sing JetKero Feb09-Dec09 $57/90 Costless Collar. With the calendar swap trading above $69.00, this hedge provides a downside average buffer of approximately $12.00 with unlimited upside protection above $90.
Singapore, 10:00
Tuesday, January 13, 2009
Implied Vols Retreat
With just a few days until expiration, February ’09 WTI pushed back up towards $40 as political pressure has increased for a larger US government stimulus package and direct capital injections. Despite trading below $40, the possible effect of any stimulus package is evident in the contango futures curve, with the entire WTI curve beyond April ‘09 trading above $50. The Brent curve trades above $50 after March ’09. Floating storage to be released upon the market throughout 2009 will continue to have a price dampening effect, while geopolitical issues such as the as yet unresolved Russia/Ukraine gas spat and the tinderbox-like war between Israel and Hamas in Gaza persist in requiring a premium of the energy markets.
The lack of sharp movement in the last few trading days has resulted in a drop in implied volatility. Consumer hedgers searching for bargains can look to the WTI Feb09-June09 $60/75 call spread strip, currently trading around an average price of $2,600 per 1000 barrels per month. The hedge can be made costless by selling the $43 put in the same tenor.
Singapore, 09:00
The lack of sharp movement in the last few trading days has resulted in a drop in implied volatility. Consumer hedgers searching for bargains can look to the WTI Feb09-June09 $60/75 call spread strip, currently trading around an average price of $2,600 per 1000 barrels per month. The hedge can be made costless by selling the $43 put in the same tenor.
Singapore, 09:00
Opportunities in a Contango Market
The geopolitical premium continues to bleed out of crude prices as Russia and Ukraine look to settle their dispute and resume gas flows. Last week’s poor US unemployment figures continue to reinforce weak consumer demand while traders await further data this week with a sense of trepidation. Along with CPI and PPI numbers, retail demand and industrial production data look set to drag equity and commodity markets lower. The only bright spot in terms of consumer demand may be that as worse economic data is released, the US Congress may be motivated to push for faster action on a larger stimulus plan.
Opec production cuts, near- to medium-term consumer demand destruction and excessive crude inventories contribute much to the current contango market structure. Traders looking for continued weakness in the near-term with the possibility of recovery in the longer-term can take advantage of structures such as the Feb09 through June09 $35 put strip with the July09 through Dec09 $85/95 call spread strip. The combined structure is currently trading around only $2,800 per 1000 barrels per month. This trade provides near-term downside exposure (the Feb-June underlying calendar strip is trading just below $49.00) while also providing long-term upside exposure (July-Dec underlying calendar strip is trading around $55.50) with only $2,800 per month at risk.
Singapore, 09:00
Opec production cuts, near- to medium-term consumer demand destruction and excessive crude inventories contribute much to the current contango market structure. Traders looking for continued weakness in the near-term with the possibility of recovery in the longer-term can take advantage of structures such as the Feb09 through June09 $35 put strip with the July09 through Dec09 $85/95 call spread strip. The combined structure is currently trading around only $2,800 per 1000 barrels per month. This trade provides near-term downside exposure (the Feb-June underlying calendar strip is trading just below $49.00) while also providing long-term upside exposure (July-Dec underlying calendar strip is trading around $55.50) with only $2,800 per month at risk.
Singapore, 09:00
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