August 13, 2007
We got stopped out of the second half of our Oct. Crude Oil 70 put options today when a price spike hit our stop at $1.50 for a profit of about $500. Overall we grossed about $1,300 on two contracts that cost us about $2,000.
As our risk was locked in at $2,000, the $1,300 return is less than what we like. We usually won't look at a trade with less than a 2 to 1 profit versus loss, and prefer our trades to have anywhere from a 3-to-1 to 5-1 reward. We're going to analyze this trade in more detail and report back on what we could have done better to have improved our return - or maybe it was a trade we just shouldn't taken and tied up capital that could have been used elsewhere.
Tropical Storm Watch for OJ
At the risk of sounding morbid, we finally got a tropical depression, but it's still too early to tell if it will of risk to Florida and its orange juice crop.
Judging by how the market reacted (a quick price spike touched the 135 mark for Nov. OJ, but the contract fell and settled down almost 1% to 130.50) it amy prove to be a non-event. Natural Gas did the same thing - spiking briefly on the news and eventually closing lower for the day.
The good news is the Nov. 160 calls have dropped to 2.65 each (just under $400). If OJ can drop back to the 120 area, we should be able to scoop up the 160 calls for about $300 each, which should be just before the September hurricane starts moving the premium upward.
For now, we're waiting.
Soy Meal Next on Tap
Midwest Future's owner, Bill Zechmann, has released a recommendation for buying soy meal calls as demand for hog feed continues to rise. We'll take a look at this trade in more depth next time.
In the meantime, if you have any questions or comments drop us an email at davidbrown@midwestfutures.com.
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 or sale of any commodities.
Monday, August 13, 2007
Tuesday, August 7, 2007
We Get Our Crude Oil Drop
August 6, 2007
As we expected, we finally got our big drop in crude with Sept. falling nearly $3.00 today. Worries about a slowing economy thanks to the sub-prime mortgage debacle continues to be one of the published reasons.
The real fuel for the fall, however, were the large long positions many hedge funds were holding. And they decided to get out big today. Remember, we are short-term bears on oil. We want to protect our profits on the 70 Oct. puts and step back to the sidelines for the next play. Besides, if the reason for price fall in crude was because of the so-called slowing economy, then why was the Dow up nearly 300 points today?
The plan: Our goal is still for crude to drop to the $70 level. Wednesday morning is when the weekly oil and gas inventory figures are released, and that day is often very volatile for energy futures. We recommend putting a tight stop on 70 Oct. puts. They ended the day at $1.88 each, so if you got in at around $1.00 you've almost doubled your money. Volume in the 70 Oct. put options is still brisk - nearly 700 contracts today - and this strike price has the most open interest of any Oct. crude put option. Place a stop on half your option contracts at $1.50 to lock in a profit if the market takes a big reversal Tuesday or Wednesday. Keep the other half of you contracts open.
When crude does hit $70 sell half your contracts and protect the rest with a modest stop-loss. Crude might continue down into the mid-sixties, or it may take a sharp bounce back up. If that happens, make sure your stop is at a level where you will get a nice return.
OJ Watch
OJ continues to drift sideways as there is no new weather news to roil the market. There is solid resistance at the 143 mark for Nov. OJ, but we're going to stay on the sidelines for now with this trade.
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 or sale of any commodities.
As we expected, we finally got our big drop in crude with Sept. falling nearly $3.00 today. Worries about a slowing economy thanks to the sub-prime mortgage debacle continues to be one of the published reasons.
The real fuel for the fall, however, were the large long positions many hedge funds were holding. And they decided to get out big today. Remember, we are short-term bears on oil. We want to protect our profits on the 70 Oct. puts and step back to the sidelines for the next play. Besides, if the reason for price fall in crude was because of the so-called slowing economy, then why was the Dow up nearly 300 points today?
The plan: Our goal is still for crude to drop to the $70 level. Wednesday morning is when the weekly oil and gas inventory figures are released, and that day is often very volatile for energy futures. We recommend putting a tight stop on 70 Oct. puts. They ended the day at $1.88 each, so if you got in at around $1.00 you've almost doubled your money. Volume in the 70 Oct. put options is still brisk - nearly 700 contracts today - and this strike price has the most open interest of any Oct. crude put option. Place a stop on half your option contracts at $1.50 to lock in a profit if the market takes a big reversal Tuesday or Wednesday. Keep the other half of you contracts open.
When crude does hit $70 sell half your contracts and protect the rest with a modest stop-loss. Crude might continue down into the mid-sixties, or it may take a sharp bounce back up. If that happens, make sure your stop is at a level where you will get a nice return.
OJ Watch
OJ continues to drift sideways as there is no new weather news to roil the market. There is solid resistance at the 143 mark for Nov. OJ, but we're going to stay on the sidelines for now with this trade.
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 or sale of any commodities.
Wednesday, August 1, 2007
Waiting for Energy Stocks Report
July 31, 2007
This, from Zman's Energy Brain:
"Bullish factors include continued problems with Iran (production and otherwise), North Sea (CATS) and Mexico (Cantarell) production, Venezuelan labor difficulties and general mismanagement, rebels, terrorists and countries run by terrorists, hedge funds, potential world power leaders who want to steal oil company profits, the EIA, the IEA, OPEC etc.
"Bearish factors include a whole lot of oil in storage in the U.S., rising Angolan production, rising Canadian production (see yesterday’s post for an important caveat), the fact that Kuwait says they have double the reserves previously thought (100 billion barrels in my best Mike Meyers voice), deepwater GOM growth on the way, rising production from Iraq (fingers crossed on that one) and OPEC who never made their curtailment quotas, continues to slip in terms of sticking with them and has made dovish statements of late regarding their upcoming meeting in September (but seem to waffling on those comments this week).
"Early Read On Wednesday’s Inventory Report from Reuters and Bloomberg:
Crude: DOWN 1.1 million barrels,
Gasoline UP 1.3 million barrels. This would put us within a hair of the lower end of the five year band, a region we have not entered since early April.
Distillate UP 0.7 million barrels
Refinery Utilization: up 0.6% to 92.3% "
We're remaining short-term bearish on Crude, and still see is coming down to the $70 level within the next 30 days. Our strategy would be to wait for the Inventory Report. If Crude starts tanking, jump in on buying the 70 Puts, which are trading in the 90-cent range. If Crude takes off, we'll wait it out, and perhaps look for a new strike price when Crude eventually comes back down to earth.
OJ Watch
OJ's back to trading sideways. No tropical storm worries yet to give the market any jitters. We're going to keep watching this set-up.
This, from Zman's Energy Brain:
"Bullish factors include continued problems with Iran (production and otherwise), North Sea (CATS) and Mexico (Cantarell) production, Venezuelan labor difficulties and general mismanagement, rebels, terrorists and countries run by terrorists, hedge funds, potential world power leaders who want to steal oil company profits, the EIA, the IEA, OPEC etc.
"Bearish factors include a whole lot of oil in storage in the U.S., rising Angolan production, rising Canadian production (see yesterday’s post for an important caveat), the fact that Kuwait says they have double the reserves previously thought (100 billion barrels in my best Mike Meyers voice), deepwater GOM growth on the way, rising production from Iraq (fingers crossed on that one) and OPEC who never made their curtailment quotas, continues to slip in terms of sticking with them and has made dovish statements of late regarding their upcoming meeting in September (but seem to waffling on those comments this week).
"Early Read On Wednesday’s Inventory Report from Reuters and Bloomberg:
Crude: DOWN 1.1 million barrels,
Gasoline UP 1.3 million barrels. This would put us within a hair of the lower end of the five year band, a region we have not entered since early April.
Distillate UP 0.7 million barrels
Refinery Utilization: up 0.6% to 92.3% "
We're remaining short-term bearish on Crude, and still see is coming down to the $70 level within the next 30 days. Our strategy would be to wait for the Inventory Report. If Crude starts tanking, jump in on buying the 70 Puts, which are trading in the 90-cent range. If Crude takes off, we'll wait it out, and perhaps look for a new strike price when Crude eventually comes back down to earth.
OJ Watch
OJ's back to trading sideways. No tropical storm worries yet to give the market any jitters. We're going to keep watching this set-up.
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