This past week has my belly full with Humble Pie. It’s been a while since I was this wrong on the energy markets and it just goes to show that no matter how much information you have, the market is…
…the final answer. My saving grace comes from a couple of points. One being the suggestion of cheap bear put spreads in these markets as opposed to short futures contracts. The other being a warning against selling naked, out of the money options in an effort to capitalize on increased premium and the perceived “safe zone” of range bound trading. The reason I made that recommendation was to combat some of the silliness I’ve heard and read lately by so called experts that now was the time to take advantage by collecting that premium and letting those options expire worthless.
The energy market on the whole is trading completely adverse to the factors I have been successfully utilizing for the past year and it seems that the fundamentals are taking a serious backseat to the technical factors at this time. We have watched over the past few months as the monthly chart for Crude has revealed a strong bull flag. However, the idea that we would be re approaching hurricane devastation prices in the midst of healthy supplies and mild weather just didn’t seem feasible. For that reason, even in the face of major breakouts in the daily charts and continuing fuel added to the fire by OPEC announcements looming, I am going to say that this rally defies gravity and I am expecting a reversal as sudden and extreme as the run we have seen to the upside over the past week and a half.
If you must get long here, protect your futures with a near the money put option to avoid the headache of being stopped out or even better if the market finally breaks down then you can exit the futures and maintain your short position in the option.
Odom & Frey Futures & Options
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