Gasoline, Crude Following Seasonal Tendencies – “Low Hanging Fruit” now in play for Option Sellers
Good Afternoon, this is James Cordier of OptionSellers.com, with a market update for March 11th. For those of you who have read some of our books, The Complete Guide to Option Selling and the different editions, on the very front cover we talk about hopefully making stellar returns in bull and bear markets.
The commodities markets over the last three years now have been certainly trending lower, and we feel that low has taken place. Over the last several weeks, we talked about looking for stabilization in commodities, so that they’re not constantly going down and pressuring option prices. As the market slowly declines, and as commodities have over the last several years, put increases, as far as premium, increases at a very slow rate. Of course, call premiums on the top side doesn’t increase at all, making for a very difficult or sometimes stagnant way of option selling. That has now changed.
Volatility is now in the market. Many commodities, which have been in down trends over the last several years, are now in sideways to upward trends, and this is what we describe as low hanging fruit. Anyone watching the crude oil market the last few weeks have seen a trade from approximately $30. Now, we’re looking at some of the spring and summer contracts trading in the low 40’s. We expect that rally to continue going into April and May, making some of the puts that we sold in the $20 level, practically worthless. We also are looking at gasoline. It is probably going to rally until April or May, as well. We expect this rally to continue.
Seasonal factors for energy prices, especially in the United States, is extremely strong. Simply put, January and February is the time to get long gasoline. It happened again in this year. We’ll be looking at doing it again in 2017. This rally is not based on fundamentals, it is based on technical and seasonal factors, which are fully in charge right now.
We see the market probably plateauing at around May or June. At that point, if crude oil prices are high enough, in order to sell calls for some of the weaker contract months, like November and December, we’ll be looking at selling the $75 and $80 strike prices above the market, as we probably tip over in June and July and probably start heading lower into fall of this coming year.
In the meantime, we’re going to enjoy this rally. We do have some puts sold below the market. Anyone who’s been following our videos for the last several weeks, we’ve been talking about selling puts around $20, $22, $24. Those will be worthless probably in the next 30 days, and certainly a trade that we certainly favor.