Options Trader: Monday Wrapup

by: Philip Davis


We overcame a shaky start and pressed on to new highs. As I said last month, at least some of the money getting squeezed out of Shanghai has to find its way here and that seemed to be happening, but despite the rising rates, the money is seeking out the stock, not bond market.

The dollar was weak all day, dropping .33% back to 82 while gold retested $675 but held flat. Ccrude went hog wild on a very special day for Criminal Narrators Boosting Crude as they began the day with the terrorist plot to attack Kennedy Airport by sabotaging fuel lines (never mind that that would cause us to use LESS fuel for a week or two) but then they began telling us scary stories about a CYCLONE in the Strait of Hormuz, where 40% world’s oil is shipped.

Sounds scary, right? The weather girl could hardly contain herself as she told the audience how the 180 mile-an-hour winds would disrupt shipping and cause an oil shortage, which caused me to think (I know, they never expect you to think), "Gee, 180 miles-an-hour seems like a lot." Well we checked into it and turns out that, rather than bother with actual facts, our friends at CNBC have once again run with the worst case scenario despite all evidence to the contrary. Even their source article (the ONLY article on the subject according to Google) closes by saying that it will likely end up a category three when it makes landfall in Oman.

Zman was right on top of things with this report, stating:

The market is now picking up on Cyclone Gonu approaching the Gulf of Oman, and whilst such a high magnitude storm is rare in this region, we have plenty of precedents in the Gulf of Mexico. These precedents tell us that selling a market as it approaches the peak of storm hype is invariably the right way forward as the chances of lasting damage are almost inevitably smaller than the hype might suggest.

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Doug also came through in the clutch and posted this map, which clearly indicates the storm is projected to have, at worst, 74-95 mph winds (category 1) when it crosses the strait. So it took our humble little team just 15 minutes from the start of the pump to unveil the hoax, yet CNBC continues to mention the 185 mph storm as if it’s a fact on the breaks between each show!

Maybe it’s not a coincidence that the cyclone story came out just after this little tidbit crossed the wires (not from the US press, of course) which Rocketbottle brought to the group’s attention:

UPDATE 1-Floating oil storage in US Gulf rises to 19 mln bbls

By Stefano Ambrogi

LONDON, June 4 (Reuters) - "Oil firms have booked space on tankers to store up to 19 million barrels of crude in the U.S. Gulf amid refinery outages and a lack of onshore storage capacity, shipping industry sources said on Monday.

"There are a number of factors playing into this but in the main we have onshore storage capacity issues and the contango in U.S. crude markets is able to pay nicely for it," one source said, referring to higher forward prices in the futures market. Firms were paying $50,000 to $60,000 a day to store the oil"

So they are paying $50-60K per day in order NOT to deliver millions of barrels of oil to the US because there is simply no room in this country to store more oil and because it is MORE PROFITABLE to cause a shortage now, drive up prices and deliver it later!

"In addition, crude imports have been rising rapidly since March and there has been a greater crude flow from Canada into the US mid-West, which has caused a large crude build and squeezed onshore storage capacity," said London Analysts, Simpson, Spence & Young’s Claire Grierson.

Please pass this article along to your local Senators and Congress-people, they’ll never do anything about it if they rely on CNBC to give them the facts!

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So oil went to $66.21 today, up $1.13 for the day and still looking to make a stab at $67, the 5th attempt to breach this level in just over two months. Well, as they say, fifth time’s a charm! Interestingly (or suspiciously, you decide), despite the 5% rise in oil in the past three days, there are still just 324M barrels on order for July, 143M on order for August and 76M barrels scheduled for September delivery. This is a net change of just 17M barrels since May 22nd, when the contract rolled over at the NYMEX.

359M barrels worth of contracts were churned traded on the NYMEX today and, if that was an average, then it took 2.872B barrels worth of trading ($190B) in order to get 17M barrels scheduled for delivery between now and September. Since every trade is a transaction and each transaction has a brokers fee and a spread between the bid an the ask, we can be pretty sure the NYMEX (NMX) is doing well as all those spreads and brokers fees and traders profits are passed on to you, the consumer, in a very "fungible" fashion.


Despite all this nonsense with oil, we had a pretty good day in the markets. Once again I was punished for being cautious as my puts lost ground again, but on the whole, it was a great day despite the poor start. Mainly, I’m happy that we got some tech leadership with Apple (OTC:APPL), Google (NASDAQ:GOOG) and Research in Motion Limited (RIMM) all posting a strong day and the SOX finally getting back over 490 (barely). Happy Trading’s chart of the day is the Nasdaq, which posted another high and looks like it may break out from here, as long as Transports don’t take the market down with them:

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US Markets

In all the excitement, we closed just five positions as few of our positions stopped out (although we rolled a number of items and some were taken half off the table):

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Puts and Calls