$this->bbcode_second_pass_quote('Wahoo', '
')The problem with buying close OTM options is that I would be betting that oil will go up soon. I have no idea if oil will go up or down in the short term.
I want to make a play that assumes oil will go up significantly in the next couple of years. I am comfortable with that assertion, but I am not comfortable spending a dime betting that it will go up in the short term. That's why I'm not considering options that expire soon.
PeakOil is You
Oil options
Re: Oil options
by CrudeAwakening » Mon 08 Dec 2008, 20:04:41
I tend to agree. The price of oil could remain fairly flat until significant supply issues develop, perhaps in 2011-2012. Dollar weakness should impart an upward nudge to the oil price, which would work in your favour, although you may end up making a nominal capital gain that is moderated by inflation in the USD.
What would happen to existing options/futures contracts if oil were no longer to be traded in dollars? Just a simple recalibration?
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Re: Oil options
by smallpoxgirl » Mon 08 Dec 2008, 20:26:07
$this->bbcode_second_pass_quote('Wahoo', 'I')f oil hits $120 a barrel sometime in 2010, I bet these options would go to $8,000 - $10,000 per contract. At that point, I could sell contracts to cancel my position and make a pile of money.
There's a thing called the Black-Scholes equation that is intended for answering just this sort of question. Run different scenarios through and see what you get. It's tricky because you are losing time value with every day that goes by.
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Now is nothing more than a memory
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Re: Oil options
by misterno » Tue 09 Dec 2008, 00:06:24
$this->bbcode_second_pass_quote('vaseline2008', '')$this->bbcode_second_pass_quote('Wahoo', '')$this->bbcode_second_pass_quote('MOCKBA', 'I')n any case it is stupid to "invest" in calls that far out. Why not buy close OTM options? If you believe that oil would more then triple (for you to just break even) then you would triple your money or worse come to worse would not loose everything if the price would just double.
There is a reason options that far out cost that little - probability of them expiring in the money are very low.
There is a reason options that far out cost that little - probability of them expiring in the money are very low.
The problem with buying close OTM options is that I would be betting that oil will go up soon. I have no idea if oil will go up or down in the short term.
I want to make a play that assumes oil will go up significantly in the next couple of years. I am comfortable with that assertion, but I am not comfortable spending a dime betting that it will go up in the short term. That's why I'm not considering options that expire soon.
I don't need oil to reach $150 to make money on $150 call options. Imagine that oil goes up above $100 sometime in the next two years based on supply/demand issues, more rampant speculation like we had earlier this year, or a major de-stabilizing event in the Middle East. The price of these $150 December 2012 calls will go up dramatically. If oil hits $120 a barrel sometime in 2010, I bet these options would go to $8,000 - $10,000 per contract. At that point, I could sell contracts to cancel my position and make a pile of money.
It doesn't have to be the Dec 2012 $150 calls. I'm not in love with that contract specifically. I could buy $120's or $200's. The Dec 2012 $200 contract will go up in price if oil jumps to $100 - $120 in the next couple of years. Remember, I don't need oil to hit $200 to make money on the $200 contract. I just need oil to go up enough to have a significant effect on the price of whatever contract I buy.
I just want to make a play that assumes oil will go up significantly in the next few years. I have no confidence in my ability to predict the next 12 months, but am fairly certain that oil will go up big over the next four years or so. Options are a good way to avoid the scary volatility of the market and capitalize on the long-term uptrend from $40 a barrel to something much higher.
Thank you everyone for your helpful insight and answers.
Here's what you can do:
Contango Pays Most in Decade as Shell Stores Crude
$this->bbcode_second_pass_quote('', 'T')raders who bought oil at the $40.81 a barrel on Dec. 5 could sell futures contracts for delivery next December at $54.65, a 34 percent gain. After taking into account storage and financing costs investors would earn about 11 percent, according to Andy Lipow, president of Houston consultant Lipow Oil Associates LLC. The premium, known as contango, is the biggest for a 12-month span of futures since 1998, when a glut drove crude down to $10.
Stockpiling crude may provide higher returns than commodities, stocks and Treasuries as the U.S., Japan and Europe endure simultaneous recessions for the first time since World War II. Crude sank 70 percent in New York since peaking at $147.27 in July. The Standard & Poor’s 500 Index fell 38 percent this year and two-year government notes yield 0.9 percent.
“The bottom line is that you buy crude at a low price and lock in a profit by selling it forward,” said Mike Wittner, head of oil market research at Societe Generale SA in London. “It’s low risk. The contango can definitely pay for storage and the cost of capital and leave plenty left over.”
What is this? So you expect us to buy oil at spot and store them in tanks and at the same time sell them for next year December? How can I do that as an individual?
