July 26, 2007
Oct. Crude Oil ended the day down $1.50 after jumping to the $76.66 level before plunging in the mid-afternoon.
As we wrote yesterday, we like the Oct. 70 Crude Oil Puts. They were trading for just under $1.00 in the morning, but after the drop in crude's price the puts shot up, closing the day at $1.42 (so, if you bought in the puts yesterday morning your investment would be up about 40% by the end of the day).
This is from Zman's Energy Brain, one of the better energy-related trading blogs we've found:
"Oil Shot The Moon Yesterday [July 25th]. September crude jumped $2.32 to $75.88 as everyone dismissed OPEC’s recent benevolence (that was so Monday!) and focused on news that four fewer loadings from the Bonny platform in Nigeria would occur next month and the EIA bullish global demand sentiment. That’s just silly. Globex crashed shortly after the report and the market took off when it came back on line. There was little in the report you could call bullish but crude drove gasoline higher as well with RBOB ending the day up $0.04 at $2.0879. The downtrend remains intact there but crude seems determined to push on up for no more reason than traders want it to. Really silly action." http://www.philstockworld.com/zman/
MarketWatch gave as its reason for today's afternoon sell-off was a spill-over effect from the stock market's 300-point free-fall and from concerns that a weakening U.S. economy will result in less demand for oil. http://www.marketwatch.com/News/Story/Story.aspx?column=Futures+Movers
Smart traders don't follow silly action. While there can be many valid reasons for crude oil to continue moving higher in the long run, I have a strong feeling that it will bounce around for a while and fairly quickly hit our $70 goal. Then we'll wait and see if we get a bounce or another drop.
I think the trade is still valid. After hours as I write this crude is up about 50-cents, so I would wait for the puts to move back down a bit, maybe into the $1.10 to $1.20 area to take the trade if you missed it this morning.
Another trade we've been looking at is Orange Juice. We had planned on buying the Nov. 160 Calls in the 2-cent to 2.5-cents area in anticipation for a big run when the first hurricane appears. But, we've noticed that OJ futures have jumped about 15-cents since last Monday, and the Nov. 160 calls are now over 4-cents each (about $600 for each option).
We're going to research this trade some more and see if there was a good reason for the recent run-up or if we expect a pull-back that will allow us to re-enter at our original 2-cent goal.
Futures and options trading is speculative and involves a high degree of risk. The risk of loss can be substantial. Neither the information presented or any of the opinions expressed constitute a solicitation for the purchase of sale of any commodities.
Friday, July 27, 2007
Wednesday, July 25, 2007
Crude Oil Set for Short Term Fall?
July 25, 2007
What we’re watching today:
Oct. 2007 Crude Oil (NYMEX) jumped $2.40 today to $75.80 per barrel, an increase of 3.3% over yesterday. What sparked the rally after crude’s three-day fall from the $76 level to $73?
According to MarketWatch.com, not much.
There was no news, and the morning’s inventory report was “fairly neutral, yet there’s a short covering of positions.” Other news pointed to a brief technical glitch that caused the CME to halt some trading on its Globex platform, allowing floor traders to run up market and trigger buy stops.
Crude has been on a steady move up since June, but strong supplies, a lack of tropical weather concerns and a fairly quiet Middle East may signal a short-term dip in crude is on the horizon that we can capture.
Buying the Oct. 70 Crude Oil Put option would be one way to take this trade, as we expect prices for Crude Oil to fall. Your loss would be limited to what you pay for the option (which today closed at $1.15, which would be about $1,150), plus commissions. Your goal would be to close out half of your position at the $2.50 to $3.00 level, and the other half around $4.00.
What we’re watching today:
Oct. 2007 Crude Oil (NYMEX) jumped $2.40 today to $75.80 per barrel, an increase of 3.3% over yesterday. What sparked the rally after crude’s three-day fall from the $76 level to $73?
According to MarketWatch.com, not much.
There was no news, and the morning’s inventory report was “fairly neutral, yet there’s a short covering of positions.” Other news pointed to a brief technical glitch that caused the CME to halt some trading on its Globex platform, allowing floor traders to run up market and trigger buy stops.
Crude has been on a steady move up since June, but strong supplies, a lack of tropical weather concerns and a fairly quiet Middle East may signal a short-term dip in crude is on the horizon that we can capture.
Buying the Oct. 70 Crude Oil Put option would be one way to take this trade, as we expect prices for Crude Oil to fall. Your loss would be limited to what you pay for the option (which today closed at $1.15, which would be about $1,150), plus commissions. Your goal would be to close out half of your position at the $2.50 to $3.00 level, and the other half around $4.00.
What can keep Crude rocketing up through the roof? Some reports say $100 Crude is not far off, but the driving factor will primarily be hedge funds and their hot money. But remember, while hedgies are quick to get on the bandwagon, they are even faster to get off. (Check your charts - remember the free-fall oil took last August, diving from $75 to less than $60 by October?)
Futures and options trading is speculative and involves a high degree of risk. The risk of loss can be substantial. Neither the information presented or any of the opinions expressed constitute a solicitation for the purchase of sale of any commodities.
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