We are into the second week of the government shutdown, and I don’t believe the people on Capitol Hill are any closer to an agreement that would get the federal government up and running again. Both sides seem to have drawn lines in the sand, and don’t seem eager to come to a compromise. The inability of elected officials to get some resolve has many market players and investors frustrated.
MARKET UNCERTAINTY GROWS
As the shutdown continues to go on, uncertainty in the marketplace grows. Market participants rely on data as indicators for possible market direction in both the short and long term. Risk managers are losing the ability to have a clear picture of what their underlying risk really is. They use the marketplace as a tool hedge risk, and protect their investments from catastrophic failures.
The equity markets seem to be in a see-saw mode, having large swings back and forth. Those markets can be tough for the retail investor to survive. Market moves tied to news headlines can be quick and volatile. These conditions are not inviting for the smaller trader or investor who is trying to watch for short term entry and exit levels. When I am not sure of what is going on in a market, I like to play it safe and sit on the sidelines.
EYE ON CRUDE OIL
One market that I do like right now is crude oil. Crude oil traded at a 14 week low after weekly inventories came in at 6.8 million barrels on Wednesday, a 1.1 million jump from the week prior. Much of the move upward in previous months was geo-political (Syria) related. As we move out of “driving season,” along with many Americans doing some budget tightening, I expect demand to continue to slide. Right now I like taking advantage of a possible move lower using a bear put spread (buying a put and selling a put at a lower strike). I am looking at buying the December Crude 9500-9000 put spread at .55 ($550.00) or better.
I am not looking for crude to get to $90.00 a barrel by expiration (11/15/13), but I do believe crude can break below $100.00 a barrel and move closer to $95.00. Since we are long premium are risk is defined to the cost of entry plus fees and commissions. I would look to take profits if the value of the spread got to 100 points. If you have the ability to trade multiple contracts I would try and scale out at every 10 points above that. If crude does not take a further dip, I would look to get out at half the cost of entry.
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.
