Following on from our recent article posted that highlighted the short side of oil if 75.50 breaks, the market has got itself down to be able to easily test the 75.50 area on oil that was highlighted as important (did not take long, eh?). Under there, the market may find itself zoning in on the $71.92 area.
Now, if you do not trade the oil futures market, because of paying the cost of carry and then worrying about a few barrels of the black stuff being rolled down your front pathway, the alternative may be in a correlated Option play.
There are a couple of ideas here, with the first being the fact that speculative interest in oil may weigh on the overnight dollar-bull sentiment. This is the first time in months that we have seen oil trade separating itself from overall global market momentum.
Asian equity markets (that have been going south at a rate of knots recently) could finally create an environment that short-oil and short-Nikkei create a short European and U.S. equity arena. If so, the Usd will find buyers fairly quickly, and in a short-oil lead move, the long side of Usd/Cad comes into play.
Breaking long through 1.0650 on Usd/Cad creates a good looking play on December Call Options. However, if you are not into hedging S&P 500 losses with a 24 hour global market trade, how about a short gold play?
It will be tough for the speculative interest not to want to liquidate some profit in long-gold, if oil and equity markets move lower. If S&P 500 futures drop under 1095 in overnight trade (when Wall Street is closed), a XAU/Usd Put (as we loaded up in an article last week) may be your cup of tea.
The triggers to monitor are Usd/Cad long through 1/0650, or S&P futures short through 1095, at the same time that crude is testing 75.50. Hopefully the oil market will keep its belt on, and S&P will go through Thanks Giving holding above 1095, but if portfolio values start to drop, we have a hedge in place.
Disclosure: No positions