Jump to content

Recommended Posts

If this (see chart) happens within the next 5-10 years, and Ben keeps the Dow above $10,000 ("wealth effect", yadda, yadda, rhubarb), then we might see $500 oil. This is a non-hyperinflationary prognosis. (In a HI, the sky would be the limit.) We seem to be not too far from some major resistance level that, once broken, would first bring us back to 2008 levels. I guess we should expect this the latest when/where the upper horizontal line cuts the upper downwards channel line (small green circle). Over time, the channel will possibly prove too conservative and will break to the downside (green arrow; add peak oil to the mix).

 

Bubb, what's your timeline for oil $400? I think it could happen within 5 years, maximum 10.

 

djiaoilratiolog201210b2.png

Share this post


Link to post
Share on other sites

Here is the payout profile of a strategy where $1,000 are piled into each of the denoted six call options (strikes: $90, $110, $130, $150, $200, $300). Total investment: $6,000 at today's prices (as seen on Societe Generale's web page). So, if oil reaches $500 by Nov 2016, these $6,000 could have made $380,000.

 

Maximum loss: $6,000.

 

Breakeven: $140 oil in Nov 2016.

 

Trade of the century?

 

There is also a good interview with Jim Puplava and Eric Townsend on peak oil ("The Trade of the Century"): http://www.netcastdaily.com/broadcast/fsn2010-1218-3.mp3

Even if the Dow breaks down to 5,000, and oil still goes to 1:20 with the Dow (or say, the Dow would be still be at 10,000, but oil "only" at 1:40), we would see $250 oil, which would still return over $50,000 in that stratgey.

 

I might give it a shot. As Jim Puplava said in the above interview (I think): sometimes you have to be bold. And is it this bold really? The breakeven is very likely IMHO.

 

oilcallstrategy.png

 

(I will merge this thread with my gambles thread in a while.)

Share this post


Link to post
Share on other sites

GF,

You are on the same page as Eric Townsend and Jim Puplava

 

THE TRADE OF THE CENTURY With: Erik Townsend

Erik Townsend: This week on the Financial Sense Newshour, Jim Puplava is pleased to welcome Erik Townsend, a successful private investor living in Hong Kong. Jim and Erik discuss the case for peak oil arriving sooner than later, and the investment opportunity this presents to the educated and nimble investor.

 

http://www.netcastdaily.com/broadcast/fsn2010-1218-3.mp3

 

Eric has told me that he wanted to say more about specific trading strategies:

But there was a concern (mostly on JP's side), that anything too complex might be confusing to much of the audience. I am sure that Eris will be developing some more sophisticated trades in the future, especially if he is able to launch his Peak Oil Fund.

 

Personally, I give a better-than-even chance to Nicole Fosse's scenario, with Debt Defaults in 2011 leading to a double dip recession, and a 1-2 year period of falling oil prices.

 

The "trade of the century" may be right, but a trader has to get his timing right.

 

The collapse of contango, and the late 2011 oil prices is a sign that others are thinking the same way, and oil may dip again before it soars.

Share this post


Link to post
Share on other sites
GF,

You are on the same page as Eric Townsend and Jim Puplava

Yes. I have started buying some calls a couple of weeks ago. Then recently I had a closer look at it again, and also the interview came out.

 

It is time for me to take some action. I also can't believe that Nov 2016 futures are at $90 or so. What do the shortsellers think??

Share this post


Link to post
Share on other sites
Yes. I have started buying some calls a couple of weeks ago. Then recently I had a closer look at it again, and also the interview came out.

It is time for me to take some action. I also can't believe that Nov 2016 futures are at $90 or so. What do the shortsellers think??

Instead of Oil Calls, I am buying:

 

+ Long dated straddles (1/2013) on SPY (about $125), struck at $130, they cost just over $30

+ Long dated puts (1/2013) on SPY, struck at $130

+ Bear spreads on QQQ

 

These are to take advantage of low volatilities.

 

If we get a Double Dip, I may sell the Puts side at a nice profit, and ride the Call as a cheap play on future high inflation / hyper inflation

 

(Some Price comparisons):

 

Other ways to Play an oil Dip-or-Soar scenario

 

STRADDLES - Oil Related (and SPY for comparison)

 

Symbol / Index Name : Price /strike : 1/2012: X$(C + P) = Str./Pct : 1/2013: X$(C + P) = Str./Pct

=============== : =======

SPY / S&P500 etf == : 126.60 /130: ($6.89+14.18): 21.07 /16.6% : (10.65+19.00): 29.65 /23.4% :

OIH / Oil Holders == : 137.64 /139: (15.75+18.48): 34.23 /24.9% : (22.55+26.05): 48.60 /35.3% :

USO / Crude oil etf = : $38.05 /$40: ($4.20+$5.90): 10.10 /26.5% : ($6.30+$7.50): 13.80 /36.3% :

XLE / Major oil sh etf : $66.32 /$65: ($6.95+$6.45): 13.40 /20.2% : ($9.85+12.40): 22.25 /33.5% :

EOG / EOR Res. === : $91.65 /$90: (13.00+11.50): 24.50 /26.7% : (18.05+16.00): 34.05 /37.2% :

 

Those two year straddles may be "relatively cheap", but 23% - 36% of the underlying is a great deal of money.

If the price just traded sideways, you could lose the whole thing.

 

But I wanted to report the numbers here for the historical record.

Share this post


Link to post
Share on other sites
Due to the lack of interest I will merge this thread already today with my "gambling" one.

I think it would be great if you would list the individual Call option prices, and then revisit the posting every month

or every quarter.

 

It would provide a great historical record of the trading opportunity.

 

It might also be useful to monitor the price of a $100 straddle, and/or $100 and $80 puts

Share this post


Link to post
Share on other sites
Here is the payout profile of a strategy where $1,000 are piled into each of the denoted six call options (strikes: $90, $110, $130, $150, $200, $300). Total investment: $6,000 at today's prices (as seen on Societe Generale's web page). So, if oil reaches $500 by Nov 2016, these $6,000 could have made $380,000.

 

Maximum loss: $6,000.

 

Breakeven: $140 oil in Nov 2016.

 

Trade of the century?

 

 

Even if the Dow breaks down to 5,000, and oil still goes to 1:20 with the Dow (or say, the Dow would be still be at 10,000, but oil "only" at 1:40), we would see $250 oil, which would still return over $50,000 in that stratgey.

I love the way you think, GOldfinger.

 

One thing I worry about in a true "crisis" scenario is the integrity of the exchanges. If these contracts eventually become very valuable, how will they be settled? With the option for physical? In rapidly depreciating fiat? Cancellation? Bankruptcy and reorganization of the exchanges?

Share this post


Link to post
Share on other sites
I think it would be great if you would list the individual Call option prices, and then revisit the posting every month

or every quarter.

 

It would provide a great historical record of the trading opportunity.

I will possibly do this, but I am not yet ready to buy for several reasons, see also next post. I also haven't decided on the size yet that I would try to take this to. But I would possibly go to small investment level, i.e. a total loss would hurt somewhat (other than in my pure gambles, that I can immediately write off due to small cost).

 

I love the way you think, GOldfinger.

 

One thing I worry about in a true "crisis" scenario is the integrity of the exchanges. If these contracts eventually become very valuable, how will they be settled? With the option for physical? In rapidly depreciating fiat? Cancellation? Bankruptcy and reorganization of the exchanges?

Settlement is cash only. In a crisis environment, you would have to immediately convert the cash to a decade's supply of bedpans etc. to get into some "real" value. Ben, Merv, Jean-Claude will print all the money necessary to pay me. That is the lesson learned from Lehman. However, I will do some diversification if I go for it:

 

- I will use at least two issuers (Societe Generale, RBS, ...).

- I will use calls on WTI and Brent (in case price fixing of some kind would hit one of these markets).

- I will use American Calls (mostly RBS, I think) and European Calls (mostly SG, I think) to mitigate OTC-related problems.

 

That way I'll have at least some of the risks spread around. But by all means, this is a pure paper shuffle bet, but it could pay off.

Share this post


Link to post
Share on other sites
It is time for me to take some action. I also can't believe that Nov 2016 futures are at $90 or so. What do the shortsellers think??

This is cheap.

 

What if we get a war FFS

Share this post


Link to post
Share on other sites
This is cheap.

 

What if we get a war FFS

Exactly. How stable will Iran be over the next 6 years?

 

Brent at a new 2-year high: $93.

Share this post


Link to post
Share on other sites
Settlement is cash only. In a crisis environment, you would have to immediately convert the cash to a decade's supply of bedpans etc. to get into some "real" value. Ben, Merv, Jean-Claude will print all the money necessary to pay me. That is the lesson learned from Lehman. However, I will do some diversification if I go for it:

 

- I will use at least two issuers (Societe Generale, RBS, ...).

- I will use calls on WTI and Brent (in case price fixing of some kind would hit one of these markets).

- I will use American Calls (mostly RBS, I think) and European Calls (mostly SG, I think) to mitigate OTC-related problems.

 

That way I'll have at least some of the risks spread around. But by all means, this is a pure paper shuffle bet, but it could pay off.

How about exchanged-traded Calls?

They should be safer

Share this post


Link to post
Share on other sites
How about exchanged-traded Calls?

They should be safer

Good point. I think quite a few of these are traded, but I'll have to do my research on it. In general, I'd possibly not pursue that strategy if I wouldn't be prepared to hold to maturity, but having those options exchange traded avoids being screwed over by the counterparty in an early sale.

Share this post


Link to post
Share on other sites
I'm doing an MM on this BTW

:) I take it you found all the others.

 

EDIT: Darn it, now I have to hurry up with this, I suppose, before everyone and their hedge fund starts piling in as well.

Share this post


Link to post
Share on other sites

The Crude Oil strip / WTI: http://barchart.com/commodityfutures/Crude...I_Futures/CLG11

============ / Brent: http://barchart.com/commodityfutures/Crude...t_Futures/CBG11

 

WTI Contracts

==========

CLY00 (Cash) 89.22s +0.41 0.00 89.22 89.22 88.81 0 12/21/10

CLG11 (Feb '11) 89.97 +0.15 89.99 90.09 89.85 89.82 2,694 23:02

CLH11 (Mar '11) 90.79 +0.15 90.79 90.90 90.67 90.64 416 23:02

CLJ11 (Apr '11) 91.42 +0.15 91.44 91.48 91.30 91.27 92 23:02

CLK11 (May '11) 91.82 +0.10 91.90 91.90 91.79 91.72 219 20:38

CLM11 (Jun '11) 92.20 +0.19 92.11 92.20 92.04 92.01 61 22:41

CLN11 (Jul '11) 92.35 +0.11 92.31 92.35 92.31 92.24 6 21:55

CLQ11 (Aug '11) 92.44 +0.07 92.44 92.44 92.44 92.37 6 21:40

CLU11 (Sep '11) 92.52 +0.06 92.52 92.54 92.52 92.46 10 21:40

CLV11 (Oct '11) 92.60 +0.07 92.61 92.61 92.60 92.53 27 21:21

CLX11 (Nov '11) 92.59s +0.36 92.57 92.59 92.57 92.23 1,810 12/21/10

CLZ11 (Dec '11) 92.67 unch 92.67 92.67 92.67 92.67 10 20:36

Beyond

WTIC= : June11 : Dec.11 : Dec.12 : Dec13 :: Dec14 : Dec15 : Dec16 :-: Dec19

12/22 : $92.20 : $92.67 : $91.86 : $90.94 : $90.78 : $91.12 : $91.52 :: $93.10

Brent- : $93.67 : $93.70 : $93.01 : $92.62 : $92.68 : $93.00 : $93.42 :: $94.99

Differ. : $+1.47 : $ 1.03 : $+1.15 : $+1.68 : $ 1.90 : $+1.88 : $+1.90 :: $+1.89

Share this post


Link to post
Share on other sites
:) I take it you found all the others.

 

EDIT: Darn it, now I have to hurry up with this, I suppose, before everyone and their hedge fund starts piling in as well.

Haha. All there.

Share this post


Link to post
Share on other sites
djiaoilratiolog201210b2.png

Well, this is going to be an interesting thread to revisit in a few years time. The ratio could well go to 20 but $500 dollar oil?? More likely the Dow will crash and follow the Nikkei for the ratio to be met.

Share this post


Link to post
Share on other sites

Oil spiked up to circa $150/barrel summer 08, immediately after the big run up in gold winter 07-spring 08. Declining inventories and peak oil stories abounded. There is a very similar feel right now.... zh article

Share this post


Link to post
Share on other sites

http://www.bloomberg.com/news/2010-12-22/c...ly-decline.html

Oil Hits 2-Year High After Supplies Drop More Than Forecast

...

Crude oil rose to the highest level in more than two years after government reports showed that U.S. supplies dropped and the country’s economy grew more than previously estimated in the third quarter.

Share this post


Link to post
Share on other sites

http://jsmineset.com/2010/12/22/trader-dan...-market-action/

Yesterday crude put in its best close in 26 months. Today it has closed above what has become both technical and psychological chart resistance at the $90 level. Should it end this trading week above $90, holiday trading conditions or no holiday trading conditions, it will put in its best weekly close since October 2008. Moving forward into the New Year, it looks most probable that it is going to make a run at $100.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×