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In This Issue
OPEC keeps output steady in face of $100 oil
Selling (Writing) Options on Futures
Economic Reports and Expiration Notices
GOOD TRADING!
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Newsletter Archives
May 7, 2008
We feel the following arcticle provides a comprehensive summary of the current economic and geopolitical factors in crude oil's all-time highs, including OPEC's role, a weaker United States economy, and conflict in South America. Long term traders: gain broad perspective. Short term traders: see where the volatility is.
By Peg Mackey and Barbara Lewis
VIENNA (Reuters) - OPEC ministers agreed to hold output steady and said oil prices which hit an all-time high on Wednesday were driven by factors beyond their control.
U.S. crude struck a record of $104.56 a barrel.
The world's biggest fuel burner the United States had said even a token supply increase from the Organization of the Petroleum Exporting Countries would help to tame prices and limit any damage to a fragile world economy.
U.S. President George W. Bush was disappointed with Wednesday's OPEC decision, a White House spokeswoman said.
But OPEC ministers argued the oil market was pushed higher by a weak dollar, speculation and political strife, and not by a lack of crude.
"Yes, the production will not be changed," Iraqi Oil Minister Hussain al-Shahristani told reporters as he emerged from Wednesday's meeting.
Nigerian Minister of State for Oil Odein Ajumogobia said oil above $100 was uncomfortable and above $80 a barrel was high.
"The OPEC official position has been anything above $80 is on the high side," he said.
Washington said on Tuesday a modest OPEC output increase of 300,000 bpd to 500,000 bpd could calm prices and help to limit any economic damage.
"I think it's a mistake to have your biggest customer's economy to slow down ... as a result of high energy prices," Bush said.
U.S. TO BLAME
OPEC President Chakib Khelil said the United States, not OPEC, was to blame for high prices.
The U.S. slowdown had lowered the value of the dollar, he said, and encouraged speculative flows into oil and other dollar-denominated commodities.
"What's happening in the oil market is due to the mismanagement of the U.S. economy, which is probably affecting the rest of the world," Khelil told a news conference.
Khelil, who was among ministers who had backed a cut in output, said a U.S.-led economic slowdown would lead to lower oil demand in the second quarter and for the rest of the year, causing oil stocks to build.
The latest U.S. government data released on Wednesday showed gasoline stocks had reached a 14-year high, partly in response to slower demand, although overall crude inventories had fallen.
The dip in crude stocks, as well as a dispute that has pitted OPEC members Ecuador and Venezuela against Colombia, helped to trigger Wednesday's oil market surge.
OPEC's next scheduled meeting will be on September 9.
But the 13-member group, which pumps more than a third of the world's oil, has said it would monitor closely the supply-demand balance.
It could use producer-consumer talks next month in Rome to review the situation.
In any case, Wednesday's no-change decision allows for quiet shifts in OPEC production.
Top exporter Saudi Arabia has consistently pledged to keep the market well-supplied with oil.
Saudi Arabian Oil Minister Ali al-Naimi said the kingdom had been pumping 9.2 million barrels per day (bpd) "day in, day out," which is roughly 300,000 bpd above its formal OPEC output target.
(additional reporting by Randy Fabi, Simon Webb, Alex Lawler and Summer Said, Writing by Barbara Lewis, Editing by William Hardy)
by Jim Wyckoff
There are old sayings in the futures industry that go something like this: "Eighty percent of all options on futures expire worthless." And, "The only way to make money trading options on futures is to sell them--not buy them."Ê Neither one of these statements is accurate. This educational feature will focus on the advantages and disadvantages of selling (also called "writing") options on futures.
But before I discuss writing options on futures, let me first elaborate on the first "old saying" that 80% of options on futures expire worthless. While I have heard the saying many times through the years, I have seen very few credible statistics on the percentage of futures options "that expire worthless." Consider this: If a trader hedges his straight futures positions with options purchases, and those options do perform their function of limiting risk for a period of time, then those options have performed their intended function--even though they may expire "worthless." Also, most speculative options buyers who make profits on trades do sell their options before they ever expire. Thus, I expect it would be very difficult to have accurate statistics on the number of futures options that are bought and sold that did not successfully fulfill their intended purpose.
A major appealing factor for speculative traders to sell (or write) options, as opposed to purchasing options, is that the odds are more favorable for producing a winning trade. Reason: If a trader is writing options, generally the market can move "against" the trader by a certain amount before the trader sees his option's strike price hit and he starts to lose money. Also, the option writer has "time decay" working in his favor--meaning that the day the option is sold, its time premium starts to decay as the option moves toward expiration.
Now you might be thinking this options-writing stuff all sounds pretty easy, huh? Well, hold on just a minute! Remember that there are trade-offs in every aspect of trading futures. Here's the "rub" with selling options:
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Jim has an EXCELLENT daily newsletter where he reviews different markets, alerts you for potential trades and much more. Included is his great bi-weekly newsletter with charts and a little longer term outlook. We recommend checking out his website, educational CDROM, and services at JimWyckoff.com
Source: Moore Research Center, Inc.
| Date | Reports | Expiration & Notice Dates |
|---|---|---|
| 03/06 Thu |
7:30 AM CST - USDA Weekly Export Sales
7:30 AM CST - Initial Claims-Weekly 9:00 AM CST - Pending Home Sales(Jan) 9:30 AM CST - EIA Gas Storage 3:30 PM CST - Money Supply |
LT: Mar Cotton(ICE)
|
| 03/07 Fri |
7:30 AM CST - Nonfarm Payrolls & Unemploy Rate(Feb) 7:30 AM CST - Ave Workweek & Hourly Earnings(Feb) 7:30 AM CST - Dairy Products Prices 2:00 PM CST - Consumer Credit(Jan) Annual Livestock Slaughter |
LT: Mar Frozen Pork Belly Options(CME)
Mar Currency Options(CME) Mar Canadian Dollar Options(CME) Mar Live Cattle Options(CME) |
| 03/10 Mon |
9:00 AM CDT - Wholesale Inventories(Jan)
|
LT: Mar Orange Juice(ICE)
|
| 03/11 Tue |
7:30 AM CDT - Trade Balance(Jan)
7:30 AM CDT - WASDE Report & Crop Production 7:30 AM CDT - Supply & Demand Report |
FN: Mar Frozen Pork Bellies
|
| 03/12 Wed |
9:30 AM CDT - API & DOE Energy Stats
1:00 PM CDT - Treasury Budget(Feb) |
|
| 03/13 Thu |
7:30 AM CDT - Export & Import Prices(Feb)
7:30 AM CDT - Retail Sales(Feb) 7:30 AM CDT - USDA Weekly Export Sales 7:30 AM CDT - Initial Claims-Weekly 9:00 AM CDT - Business Inventories(Jan) 9:30 AM CDT - EIA Gas Storage 3:30 PM CDT - Money Supply |
LT: Mar Nikkei 225(CME)
Mar Nikkei 225 Options(CME) Mar Cocoa(ICE) |
* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.
** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.
*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!