This weekend is the unofficial kick off of the summer season in the U.S. Although if you live in the Chicago area the forty degree weather we have had this week might have you wondering when spring is arriving. The long holiday weekend usually sees many families and travelers hitting the road and starting what has now become “driving season.”
One of the biggest factors in recent years of how many people are willing to load up the family truckster and drive is the price of gasoline. For decades drivers in U.S. were able to enjoy stable and fairly low gas prices. In the last decade the cost of heading to the beach, the campground or music festival has doubled for many when it came time to filling up at the pump. This year is setting up a bit differently.
Since the last quarter of 2014, we have seen great amounts of volatility, and significant price moves in the crude oil market. In November crude oil was trading near $80.00 a barrel, and then descended into a downward trend all the way down to $43.00 in March of this year. It has not been a straight move down, and there have been a few corrections along the way. Since putting in the low in March, we have seen crude on a climb back up, and currently is trading near $60.00. Ahead of the summer, many are asking which way we are going next.
One of the beauties of options is the ability to take both sides of a market. Being long a strangle gives us the ability to take advantage of a move in either direction. I like buying the September crude 40-80 strangle at 30 points or better. This is a bit of a sit back and wait trade, with expiration in August. Risk is limited to the cost of entry plus fees and commissions. I am setting an initial target exit of 80 points. If crude seems to be a sideways market and we don’t get a directional move, I would try to limit a loss to 20 points or less.
No matter how you view the upcoming weekend, start of summer, getting the yard ready, or watching the Indy 500, please remember its intended purpose. Memorial Day is a time to remember those who gave the ultimate sacrifice for this country.
For those interested Walsh Trading is holding our weekly grain webinar Thursday May 21st at 3 pm 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.
