In the last 3 weeks RBOB futures have appreciated 30 cents or 11% putting prices over $3/gallon. It appears that we are running into resistance at $3.05 on the March contract and I see limited upside before we have at least a moderate correction. Support is seen on the chart above at the 8 day MA; identified by the orange line. I think we need to see consecutive settlements under that pivot point before futures retrace. As one can see on the stochastic under the chart prices are extremely over bought. I have suggested traders have bearish trades on their radar but have yet to make any moves as I am looking for confirmation.
I think there are several ways to attack this market depending on your account size and risk tolerance. A pure play on RBOB could be constructed by buying put options, selling call options or a combination of a futures and option trade. For example selling out of the money put options while simultaneously getting short 1 futures contract. To collect enough premium you may need to go out 3-4 months. Also a crack spread as aggressive traders could get short (1) RBOB and long (1) WTI Crude oil futures. The idea would be to make more money in RBOB or Crude than you lose in the other, though it is feasible on days like today that you make on both legs. Every $1 move in Crude futures represents $1000 gain/loss and every 1 cent move in RBOB represents a gain/loss of $420.
I think prices have traded high enough in RBOB that we have started to see demand destruction and if we see the consumer back off in the coming weeks it should have an impact on prices finding an interim top. It appears the trade (crack spread) just started to work today… this should be on your radar if an energy trader or you trade commodity relationships.
To discuss in more detail this chart or any other you can reach me at: mbradbard@rcmam.com or 954-929-9997
Risk Disclaimer: The opinions contained herein are for general information only and are not intended to provide specific investment advice or recommendations and are not tailored to any specific’s investor’s needs or investment goals. 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 of your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results.
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