Crude Oil Calls Ripe for Picking into “Shoulder” Season


Oct

6

2017

Crude Oil Calls Ripe for Picking into “Shoulder” Season

Click To Read Video Transcript

(Video Transcript)

October 6, 2017 Update James Cordier

Good afternoon. This is James Cordier of OptionSellers.com with a market update for October 6th. Well, it really wasn’t that long ago when the U.S. stock market was in dire straits, unemployment was in double digits, and millions of homes were underwater in the United States, not literally, but figuratively, and millions of homes were completely vacant. Basically, giving the keys back to the bank and saying, ‘you take it.’ Several years later, after something called quantitative easing, we have unemployment at 5%; we have the stock market making new highs practically every day and, the only trouble right now with the housing market right now in the United States is there aren’t enough houses to sell. How much of this can be attributed to quantitative easing I’m really not sure but, what’s been announced recently is the rollback of quantitative easing – actually selling back the bonds that we’ve been buying here in the United States which drove interest rates down to zero. With all the uncertainty around the world, geo-political, the height of the stock market, the value of the dollar, all these uncertainties are really causing investors to purchase options, both puts and calls, and especially in commodities, such as precious metals, energies, and foods. I’m not quite sure that’s such a great idea. Of course, we’re always selling options and we’re looking to take advantage of over-priced puts and calls in the main commodities that we follow. All this uncertainty is causing a lot of buying but, the rollback of quantitative easing, the normalization of interest rates here in the United States, we think it’s going to be quite a stabilizing factor and, we think that selling options on commodities right now is ideal. Over the last six to twelve months, we thought that gold calls were too high and we took a short position there. We thought that coffee calls were too high, along with the price and, the price of coffee has come down. We recently took a pretty decent sized position in short natural gas thinking that calls double the price was probably a good idea and all three of these different positionings that we’ve taken have done extremely well. Going into the fourth quarter of this year, we’re looking at the price of crude oil. Crude oil, of course, has been supported by OPEC nations banding together to keep some production off the market – a resounding ‘yes’ by many market participants buying crude oil above $50 recently. To peel back the onion on crude oil production – countries like the UAE and Iraq, and a couple others are participating in the rollback of production to the tune of 30% compliance, not very impressive. Going into shoulder season, of course, that is much after driving season, well before heating season, we’re looking at not only cheating amongst OPEC nations but, of course, here in the United States we’re looking at a huge ramp-up of production of crude oil. We think that ten million barrels a day is probably right around the corner and, going into shoulder season we expect crude oil prices to ease somewhat. We like being short the market in the mid to upper 60’s. We think that oil will likely be in the 40’s later this year. We’ll have to see how that plays out. Anyone wanting more information from OptionSellers.com can visit our website. If you’re not already a client of ours and wish to become one, you could speak to Rosemary at our headquarters in the great city of Tampa, Florida. As always, it’s a pleasure speaking with you and looking forward to doing so again in two weeks. Thank you.

  1. Hello James, Michael,

    Although you do not like to hunt for tops and bottoms like you always say in your videos and in your book, your precision is unbelievable. Oil is crushing today as you publish this video!

    I have a question to ask. It is true that production from rigs is 9500 today and dynamics is positive. However crude imports dropped from 7,500 to 5,000+ per day. This is a big dent to overall crude supply. Do you have a feeling this will take toll on crude prices decline? To bring some sort of slowing? All petrol inventories in the US dropped from 1.3b a year ago to 1.2b today.

    Thank you.

    • Michael Gross Says:
      October 16, 2017 at 2:41 pm

      Andrey,

      Great question. Inventories are a little “less bearish” than last year. That being said, bearish is bearish. While the fighting in Iraq is supporting prices in the near term, we still feel seasonal pressures will be a weight on the market into winter.

      Regards,
      Michael

  2. Dan Harris Says:
    October 7, 2017 at 6:18 am

    James, you mentioned for CL, “Going into shoulder season, of course, that is much after driving season, well before heating season,” … that implies November maybe December this year. Premiums are too low for that # days remaining. Perhaps the ‘should er’ that you intend is “after heating season & before driving season” in the spring of 2018? Then premiums are much better… Regards, Dan

    • Michael Gross Says:
      October 16, 2017 at 2:43 pm

      Dan,

      Shoulder season occurs in the fall, after driving season and before heating season begins. That does not mean you should sell 30-60 day options. Selling 6 month options can still be a solid play in this environment.

      Regards,
      Michael

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