Crude oil – $108 is the Line in the Sand

High to low on the week Crude oil jumped $6/barrel but front month futures failed above $108 just as that level capped upside on 7/19 and again on 7/22. Crude oil fell short of its contract highs by 11 cents and has traded south since. Early support came from upbeat news out of China and Europe but that was quashed by a disappointing jobs number; about 20,000 less jobs than expectations and unemployment remaining at 7.6%. Strength in the US dollar or weaker equity markets could be outside contributor to further weakness in energies.

Under current trade the next support level comes in at the 8 day MA (orange line) and the 18 day MA (dark blue line). I suspect that futures are below those pivot points next week and on our way to last week’s lows. A 38.2% Fibonacci retracement and trade to the 50 day MA (green line) is ultimately where I think prices drift to in the coming weeks. If it is a slow grind lower it may be advisable to start with October futures as opposed to September if you do not want to worry about the roll. As of this post September carries a 64 cent premium to October.

As for trade ideas…

Crude oil futures, August 2, 2013

Crude oil futures, August 2, 2013

  • Short futures with an options leg…either selling puts or buying calls 1:1. If implementing a call option leg I would be a buyer of September calls (only 14 days) or selling puts in October ($102 – $104 strikes) against a short futures. The idea is on a move lower in the futures to make more money in the futures than you would lose in your options leg.
  • $5 Bear Put spread in either October or November potentially looking to unwind in the coming weeks or hold until expiration if intrinsic on both legs. Current costs in October for $105/100 is ballpark $1700 and in November for the same strikes but an additional months time $2200. The two legs allow some flexibility and by selling the lower leg and using a strategy like this it gets your target closer vs. paying the same premium for an outright. That is the pro the con is you cap out your profit potential at $5 or $5,000 per spread minus the premium paid and all transaction costs.

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As always, I’m here to discuss specifics and give guidance. Shoot me an email…Give me a call… you can reach me at: mbradbard@rcmam.com or 954-929-9997

Risk Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities and/ or financial products herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed to be accurate. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.

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