Yesterday we saw an unexpected rise in fuel products reported by the API. According to the API Crude stockpiles fell 999,000 barrels last week but gasoline stockpiles rose 1.7M barrels and distillates rose 1.1M barrels. The EIA out today reported a slightly more bullish figure showing oil stockpiles falling 2.8M barrels. The EIA also indicated refinery activity slowing and gasoline demand declining. When we get bullish reports and the market moves lower instead of higher that to me is a tell. To some extent I am speaking to my client’s position…bearish trade. I am expecting lower trade and continue to use the 8 and 18 day MAs as my pivot points. In October those levels are currently at $105.25 and $104.85 respectively, just below current trade.
As one can see on the top Fibonacci level near $107 we have failed to jump that hurdle on multiple attempts within the last month. In the coming weeks I expect to see a grind lower, the 38.2% Fibonacci level is just shy of $102/barrel the 50 day MA (green line) is near $101. Use those two levels as objectives in bearish positioning.
As for the trade…
I’ve suggested for clients two trading ideas…
- Short October futures and if they want a cushion to hedge against an upside spike to sell October out of the money puts 1:1. Consider a $103 strike for ballpark $1700 which currently has a 35% delta.
- For an options strategy consider buying bear put spreads. As of this post traders could buy an October $5 bear put spread ($105/100) for approximately $1600; 35 days time, just out of the money with a 25% delta. If held until expiration and futures are below $100 the spread could be maxed out at $5000-premium and transaction costs. So just about a 2:1 risk/reward dynamic.
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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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