The price of crude always grabs people’s attention, whether it is at high levels or trading near lows. Many people pay even closer attention at this time a year as we head into summer driving season. A drastic change in crude prices can cause worries about the price at the pump. High gas prices can mean the difference between a trip across the country or a staycation for many families.

This week saw a large drop in crude inventories (down 6.8 million barrels) from the week prior. At the same time we also learned that crude oil production in the U.S. is at its highest monthly level since 1972. The poses a bit of see-saw news for the markets, and it is hard to determine what the next direction is. The weaker U.S. Dollar (as of late) seems to be giving a little help to the bulls right now.

With domestic production on its highs, and OPEC not slowing down, there is going to be plenty of crude oil out there.  But if there is a currency war, and the U.S. Dollar continues to get beat up, this could help crude oil prices to remain high even without a supply issue. The back and forth market moves and the conflicting fundamentals have me looking for the market to be range bound.

For the reasons given above, I like trying to strangle the market. I like selling the August crude oil 50-70 (50.00 Put & 70 call) strangle at 50 points ($500.00) or better. We will be collecting premium on entry of our trade, and I am looking to stay in the trade until expiration on July 16th. There is unlimited risk in the trade, so it is not for everyone. Breakeven levels are to 49.50 on the downside and 70.50 on the upside. If crude is between 50.00 and 70.00 at expiration, the options will expire worthless and you can keep the entire premium.

For those interested Walsh Trading is holding our weekly grain webinar Thursday June 11th, 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.