The futures markets were established for big companies to hedge risk. An individual investor or trader has the same opportunity. Don’t be afraid to take a look at what you have on the table and considering hedging your bets.
If there is one commodity that the average person in the United States knows the price of, it might be crude oil.
People might eat bacon every day, but they probably can’t tell you where hog futures are trading at. The same could be said for many other commodities (meats, dairy, grains) that consumers use on a daily basis. American consumers are very price sensitive to the price of crude oil, most likely as a result of watching the numbers change as they fill their cars at the pump.
CRUDE OIL ACTION
Crude oil passed the $100 per barrel price in the futures market again at the beginning of February. We saw crude start the year in a downtrend, trading below 92.00 in early January. Since that low it has been on a steady move to the upside since. Demand and weather issues have helped support this recent move above the $100 mark.
There are many reasons to trade a specific market; volatility, technical levels, breaking news to name a few. Sometimes it can break down to the basics, one of them being supply and demand. We have experienced an extremely cold winter across the U.S., with below freezing temperatures extending to the Deep South. These temperatures have increased demand on heating oil, a by-product of crude. As we head into spring with warmer temperatures (I hope), this demand is going to dwindle. The lessening demand combined with a continuing increase in supply could put downside pressure on the price of crude.
BEAR PUT SPREAD
Right now I am looking at a bear put spread in June Crude oil. I like buying the June Crude 97-95 put spread at 50 points ($500.00) or better. Full spread value ($2000.00) would occur with both strikes in the money at expiration (05/15/14). I am looking to double our money, placing a target exit at 100 points. Since we are long premium, risk is limited to the cost of entry plus fees and commissions.
For those interested Walsh Trading is holding our weekly grain webinar series this Thursday March 6th at 3pm central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. If you are unable to attend live, a recording will be sent to you by email.Registration
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
