If you are in the U.S. and glance at the calendar, you might notice that we are at the peak of summer. Those of us in the Midwest pay close attention to these things. The only way many of us get through the winter and the season that resembles winter but is known as “spring”, is remembering that summer is not too far off. We cherish every day above 70 degrees that also has sunshine. Unfortunately all good things must come to an end. For some, summer will come to an abrupt halt as young athletes return to football and other sports. Others are able to eek a little bit more time out of their vacation until it is time for the word no one wants to hear…school. Even though you may not have anyone tied to an academic calendar, Mother Nature will win out and the season will change.
As we get through the back nine of the summer, we also move away from the prime time of “driving season”. The number of Griswolds trekking their way across the USA in family tricksters will be diminishing each week. This decrease of tired and worn down families on the road, is viewed by many as a dip in the demand for gas and crude.
Production has not slowed down on the supply side for crude oil. The U.S. is still producing at almost thirty year highs. On the demand /consumer side, we are much more efficient. Cars get better gas mileage, and big industrial machinery and equipment is much improved from a decade ago. I think there is another downside move in the near future.
TRADE IDEA
I like using a bear put ratio spread to take advantage of a further move down in crude oil. I like buying the October crude 45-41 1×2 put spread (buying one 45 put and selling two 41 puts) at 20 points ($200.00) or better. Although we have unlimited risk on the naked short 41 put, the breakeven point is 400 points lower with crude at 37.00 a barrel at expiration on 9/17/15. I am looking at this trade as a premium play and setting an early target exit of 200 points. If you are able to trade multiple contracts I would look to scale out a t 50 point increments after that. If crude stays above 45 leading into September, I’m willing to stick around up until ten days from expiration, and would then exit for a loss.
For those interested Walsh Trading is holding our weekly grain webinar Thursday July 23rd, 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.
