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    • Sat Aug 9th 10:31 AM | Rating: 0 0
      Commented on:
      Test-Driving Some Exchange-Traded Oil Vehicles
      Given the current volatility of spot futures, there's a 2% probability of oil rising above UOY's/DOY's upside trigger of $185 per barrel by year's end. The probability of crude punching through the $15-a-barrel downside threshold in that same time frame is statistically zero.

      I'd say those are pretty good odds for a DOY play.
      View article »
    • Thu Jul 31st 16:52 PM | Rating: 0 0
      Commented on:
      Oil Analysts: 1-for-4
      WHAT excess oil?

      You're right. We're profligate consumers of oil and apparently have a learning disability. After a couple of oil shocks, we jawboned a lot about alternatives but quickly reverted to our old consumptive ways.

      There are two aspects to "political will." First, there's the willingness of developed countries to reduce oil consumption. Then there's the ability of developing countries to sacrifice their "catch-up" gains.

      OECD countries, especially those with established mass transit infrastructure, are much more likely to conserve. What incentives exist for countries anxious for modernization to do the same?
      View article »
    • Thu Jul 31st 13:49 PM | Rating: 0 0
      Commented on:
      Oil Analysts: 1-for-4
      While our thirst for finished fuels has diminished from last year's level, it's hardly a wholesale destruction of demand.

      Oil companies, like speculators, are easy targets for politicos. The oil companies are producing less because they're GETTING less. Oil, that is. Oil fields are increasingly subject to nationalization as reserves dry up.

      Only two words are needed to describe the forces at work: "supply" and "demand."
      View article »
    • Thu Jul 31st 10:55 AM | Rating: 0 0
      Commented on:
      Oil Analysts: 1-for-4
      Redbaron -

      You're not missing a thing.

      Production is NOT keeping up with demand. There's a lot of idle capacity (see the drop from 93.6% to 87.2% in utilization) because margins are so low. With yesterday's price blip, refining margins shrank further to 6.9% or 21 cents a gallon.
      View article »
    • Thu Jul 24th 09:38 AM | Rating: 0 0
      Commented on:
      Why Congress Blames Index Speculators
      jjason -

      Speculation in futures DOES produce value. Historically, the presence of speculators has reduced price volatility and that results in lower net prices for consumers. That's been the case for over 130 years, long before you entered high school.


      Charlie --

      Trying to pinpoint the "cost" of something like speculation embedded in the price of a barrel of oil is an interesting, but highly subjective enterprise.

      One well-known market observer (Phil Verleger) argued that a third of the run-up in the price of oil, from $70 to $100 a barrel, was due to buildups in the US Strategic Petroleum Reserve. Inventory reductions, he said, were responsible for another ten percent of the price hike and delta hedging -- a dynamic risk management technique used by commerical users such as airlines -- was responsible for the remaining 60 percent.

      You want numbers? Quantify the effect the erosion in the value of the dollar has had on oil's price. Compare the price of oil in euro to its greenback price over the Verlager price period. There's $47-$50 a barrel worth of price inflation right there.

      What empirical evidence does the PEMEX official making the $80 claim offer?

      remarkl -

      I'm sorry, but I can't fathom your arguments.

      1. If speculation is banned, how does hedging even happen? Hedgers rely on speculators. Take them out and there IS no hedging.

      2. Index investing is bad citizenship? There's ONLY room for active investing -- a form of speculation? Trades made by index investors are exposed to the auction market in the same manner as all other trades. In fact, the argument made by detractors is that the bids made by index funds and their agents are driving prices higher.

      3. To say that corn's price has risen solely because of the influence of oil means you're ignoring the demand and supply curves for the commodity. Are you really saying that there's no intrinsic worth to field corn? That planting intentions and weather are irrelevant?

      4. You say you plan on buying PBR shares. Isn't the purchase of the stock, itself, a speculation?
      View article »
    • Wed Jul 23rd 22:13 PM | Rating: 0 0
      Commented on:
      Why Congress Blames Index Speculators
      Charlie -

      It's dangerous for Congress to go off half-cocked.

      Discouraging legitimate speculation makes a market inefficient. And there IS a legitimate side to speculation. Speculators shoulder risks commerical entities are unable or unwilling to carry.

      It's for this -- risk transference -- that the futures market as we know came into being in the first place.

      Look at recent legislative attempts to curtail speculation in India. Disastrous.
      View article »
    • Wed Jul 23rd 22:04 PM | Rating: 0 0
      Commented on:
      Why Congress Blames Index Speculators
      zhandax -

      Positing is not proof. It's supposition.

      ICE doesn't own the market for West Texas Intermediate (WTI) crude oil futures. Today's WTI volume on ICE was 165,641 contracts. At last count, the average daily volume (ADV) for WTI futures on NYMEX was 558,214 contracts. That doesn't count the 144,915 ADV for WTI regular futures options, the 3,873 ADV for average price options and an equal number of calendar spread options.

      Why would somebody trade on CFTC-regulated NYMEX versus FSA-regulated ICE?

      Well, in the first place, liquidity. Form the numbers you see above, futures liquidity alone at NYMEX is triple that of ICE.

      ICE contracts, too, are cash-settled ONLY; there's no physical delivery mechanism. That, believe it or not, is a important factor for many traders. NYMEX contracts can be physically or cash-settled.

      Third, there are no options traded on ICE futures. NYMEX futures can be spread, hedged and margined with options as integrated units, allowing a trader much greater flexibility in targeting exposures.

      Fourth, clearing fees. ICE charges members 73 cents per contract per side; NYMEX only 70 cents. Pennies add up.

      Need I say more?
      View article »
    • Wed Jul 23rd 00:53 AM | Rating: 0 0
      Commented on:
      Inflation: Tears in Your Coffee
      The table's been corrected ...
      View article »
    • Wed Jul 23rd 00:50 AM | Rating: 0 0
      Commented on:
      Ashland Could Be a Play
      Yup. Aware of that deal and all the other acquisitions the company's made to diversify itself out of oil.

      There' more to hammering than just the HPC deal, though. There's a lack of confidence in management, for one thing ...
      View article »
    • Tue Jul 22nd 09:46 AM | Rating: 0 0
      Commented on:
      Tracking Crack Spreads
      DC Reader -

      Valero actually refines more oil in the United States than ExxonMobil does in its company-owned facilities. Valero cranks out 2,112,000 barrels a day from 13 sites while ExxonMobil churns 1,880,500 barrels out of a half-dozen refineries. Of course, Valero's production is strictly domestic. ExxonMobal operates globally.

      The Oil & Gas Journal keeps tracks of such things.

      Larry -

      The spread seasonally cheapens through the fall. Last October, in fact, it contracted to 12 cents a barrel before rebounding.

      Trading the reverse crack spread (selling crude short and buying the products) is an option if you think crude's headed lower, but it's a much riskier proposition. It's better for most traders to await the bottoming.
      View article »
    • Sat Jul 19th 10:44 AM | Rating: 0 0
      Commented on:
      Gold vs. Oil
      bearfund -

      You're right, of course, about MacroShares' price variance from oil. That's, in fact, the point of the piece: turning an investment lemon into lemonade. We're USING, instead of simply DECRYING, this characteristic.

      DOY's tracking error is a boon for the short-minded trader in this case because it creates, unintended though it may be, a leveraged return.

      The premium and discount reflected in UOY and DOY prices are the costs of the embedded options discussed in "Accounting for MacroShares Premia/Discounts" (www.hardassetsinvestor...).
      View article »
    • Thu Jul 17th 09:46 AM | Rating: 0 0
      Commented on:
      Inflation: Tears in Your Coffee
      Yup. The dates at the top need to be switched.

      How'd THAT happen? Probably the watered-down, inflation-fighting coffee in the proof/editing stage.

      Thanks for the catch. It'll get fixed.
      View article »
    • Thu Jul 17th 00:06 AM | Rating: 0 0
      Commented on:
      Why Bother with SPDR Gold Shares Options?
      Mark -

      Gains or losses on LEAPS positions, regardless of the underlying asset, are treated as capital assets: a holding period in excess of 12 months entitles a long to a long-term capital gain or loss.
      View article »
    • Wed Jul 16th 11:37 AM | Rating: 0 0
      Commented on:
      And the Oil Derby's Off...Way Off
      User 224526 -

      Check one of your quotes for accuracy and your presumptions. You cite one source saying:

      "When Enron failed and took its private, unregulated energy exchange to the grave, another rose to take its place. The Intercontinental Exchange (ICE) was the brainchild of

      Morgan Stanley,
      Goldman Sachs,
      British Petroleum,
      Deutsche Bank,
      Dean Witter,
      Royal Dutch Shell,
      SG Investment Bank and
      Totalfina. "

      Enron entered bankruptcy in 2001. Dean Witter was merged out of existence in 1997 after combining with Morgan Stanley.

      Yhe creations of ICE's backbone, the former International Petroleum Exchange, predates by decades the Enron mess.
      View article »
    • Tue Jul 15th 11:24 AM | Rating: 0 0
      Commented on:
      Why Bother with SPDR Gold Shares Options?
      Thanks for your comment.

      Let's, however, clarify, some points.

      First, the counterparty for each option transaction on the Chicago Baord Options Exchange, where GLD contracts trade, is the Options Clearing Corporation. Default risk passes from the trader to the OCC once a trade is matched. OCC steps in and become the buyer to every seller and the seller to every buyer, allowing traders to focus on only one counterparty rather that several entities with varying levels of creditworthiness.

      Owning physical gold is not without its own set of risks.

      First of all, there's the capital commitment. If you buy gold for cash, you tie up a lot of capital in a non-interest-bearing asset. Gold's price volatility makes the risk BIG when you commit MORE capital to the asset. Owning a LEAPS call, on the other, limits the capital exposure (to, in the example cited, less than a third of the value of the underlying asset).

      Risk isn't limited to losing interest on your capital, either. There are real expenses attached to holding gold in the form of storage and insurance costs.

      Gold's price voilatility, too, creates substantial risk in itself. The more capital commited to the trade, the lareger the risk.

      Gold, being denominated in dollars, too, exposes the holder to exchange risk. If you used dollars to buy gold, but had to liquidate in other currency, you port the exchange risk into your transactuion.

      Then there are the costs of transfer. Physical gold must be certified or assayed at each transfer, adding time and expense to such actions.

      You say "traders in GLD options must surely be gold bears, fools, moneyed types so filled with hubris that they could never imagine their own financial system collapsing, or nihilistic speculators convinced that in extremis even the most dependable form of money will surely be worthless."

      The example given in the article illustrated the purchase of a LEAPS call. That's one of the most bullish positions conceivable; more bullish, in fact, than owning the underlying asset outright. What makes this trade bearish?

      You also "suggest writing out of the money puts to get long exposure and generate a return on whatever idle cash you don't care to convert directly into metal."

      IYou damn a long LEAPS call position -- one that offers open-ended profit potential on gold's upside with a clearily defined and limited risk on the downside -- on the one hand, then advocate the writing of naked puts for a limited profit potential (in fiat dollars) and a large downside.

      Had you considered the fact that an assignment on the short puts would put you long GLD shares -- the very same position you'd be in if you exercised the long GLD LEAPS calls?


      It seems contradictory to damn a long LEAPS purchase, th If you feel compelled to trade in these securities, I

      View article »
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