There are many traditions we observe as we move from winter into spring. Those traditions can vary a great deal based on what stage you are at in life. Young children may participate in an egg hunt while those of the college age group might be on a beach enjoying spring break. Some enjoy spring cleaning more than others, and the return of baseball gives many some optimism that this may be their team’s year. One event that few if any enjoy is higher gas prices at the pump come springtime.
In what seems to be an annual event, gas prices have been creeping higher as we gear up for the summer “driving season.” The National Average Prices from AAA’s Daily Fuel Gauge report tell us that the price of regular unleaded is $3.685, up over 15 cents from a month ago, and almost 17 cents higher than a year ago at this time. In many parts of the country (Chicago for example) the average price is over $4.00 per gallon.
Geo-political factors have helped contribute to this year’s spike in the price of crude oil. Crude oil closed above $100 a barrel for the fourth consecutive day Wednesday, as concerns about situations in Ukraine remain in the forefront. Unrest in oil rich areas of the world often cause large buyers of crude oil to start buying in larger volume, trying to stockpile out of fear of higher prices down the road. Along with the Russia –Ukraine issues, there are also less than ideal situations taking place in Libya and Nigeria, two large oil supplier nations.
BUY CRUDE OIL CALL SPREAD
I am looking for crude to continue to push higher as we head into the summer. With July crude oil trading near 101.50, I like buying the July Crude 104-106 call spread at 50 points ($500.00) or better. It pains me to say this, but I think it’s possible to see July crude trading at 106.00 by expiration on 6/17/14. We are long premium so risk is limited to the cost of entry plus fees and commissions. I want to stay in this trade as long as possible trying to get maximum value. If we should see a reversal in crude to the downside, I would look to get out for a 25 point loss.
USE THE MARKET TO HEDGE
Most individual traders are speculators, and don’t ever think of themselves as using the markets to hedge. You look for opportunities in the market and try to take advantage of them. Every once in a while you can become a hedger. If you’re planning that summer road trip to a National Park, or just taking several trips to the family cottage over the summer, fuel costs could be higher than just a year ago. Think about putting your hedge cap on and planning ahead for price spikes at the pump. And don’t forget to drive safely.
WEBINAR
For those interested Walsh Trading is holding our weekly grain webinar series this Thursday March 13th 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. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.
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.
