Beartrap

[Tet]

Last summer's Israeli jack-up in the price of crude to $80 is being duplicated by this years Turkey's jack-up in the price of crude to $90. Last summer after the Israeli's turn tail and run away crappy tech stocks go on a 17% sprint to close out the year when the price of crude collapsed. I don't remember the last time crude was sitting so far removed from any support, looks like a good time for gravity to enter the equation, lots and lots of air sitting under this $90 number.



Time scale calls for a large correction here, the news gets spun to match the upcoming plunge in the price of crude. Turkey doesn't invade, BP announces large discovery of hydrocarbons in Antartica, it doesn't matter what they come up with the price is getting ready to drop.

Get ready for some major Petrol D0llar recyling into some QQQQ's, and other POS stocks. Judging from the Oil chart, Tech is getting ready for some major surprises to to upside this week or next, beware CISCO for all those who bet the short side. I'd bet double digit number in Tech to close out the year. TWT.

[*T*]

Re: Beartrap

Agreed, but shorting oil is pretty hairy in my experience; you can get whipped around by high volatility at the turning points. It is possible to wait until the trend is down but with so much froth the first move down will be sharp when it happens.
A spread against gold perhaps?

[GRG55]

Re: Beartrap

Last summer's Israeli jack-up in the price of crude to $80 is being duplicated by this years Turkey's jack-up in the price of crude to $90. Last summer after the Israeli's turn tail and run away crappy tech stocks go on a 17% sprint to close out the year when the price of crude collapsed. I don't remember the last time crude was sitting so far removed from any support, looks like a good time for gravity to enter the equation, lots and lots of air sitting under this $90 number.



Time scale calls for a large correction here, the news gets spun to match the upcoming plunge in the price of crude. Turkey doesn't invade, BP announces large discovery of hydrocarbons in Antartica, it doesn't matter what they come up with the price is getting ready to drop.

Get ready for some major Petrol D0llar recyling into some QQQQ's, and other POS stocks. Judging from the Oil chart, Tech is getting ready for some major surprises to to upside this week or next, beware CISCO for all those who bet the short side. I'd bet double digit number in Tech to close out the year. TWT.

How low and for how long?

[Tet]

Re: Beartrap

Agreed, but shorting oil is pretty hairy in my experience; you can get whipped around by high volatility at the turning points. It is possible to wait until the trend is down but with so much froth the first move down will be sharp when it happens.
A spread against gold perhaps?

Bottoms always seem to be easier to call than tops. November 7th Cisco announces, Saudi's go to 9 million bpd from 8.7 million November 1st and I believe we'll get some warm weather announcements about this time. This winter Russia exports don't shut down like they normally do as well. I think this Turkey invading Iraq falacy plays out for a couple more weeks and then would be a time to short. Volatility should be high until then. My comments were geared more to equities and I believe a drop in crude will be offset with a rise in stocks.

[GRG55]

Re: Beartrap

Bottoms always seem to be easier to call than tops. November 7th Cisco announces, Saudi's go to 9 million bpd from 8.7 million November 1st and I believe we'll get some warm weather announcements about this time. This winter Russia exports don't shut down like they normally do as well. I think this Turkey invading Iraq falacy plays out for a couple more weeks and then would be a time to short. Volatility should be high until then. My comments were geared more to equities and I believe a drop in crude will be offset with a rise in stocks.

This logic would have equities falling for most of this decade. Instead oil and equities in every market around the world have been positively correlated since the US major indices bottomed in Oct 2002. Why do you think this has changed?

[Tet]

Re: Beartrap

[quote=GRG55;17990]This logic would have equities falling for most of this decade. Instead oil and equities in every market around the world have been positively correlated since the US major indices bottomed in Oct 2002. Why do you think this has changed?[/quote]

Not quite sure that anything has changed, I believe crude was at about $10 when the Dot.com bubble was at 5,000 in March of 2000 and the d0llar was at 120. These would be the three variables to watch. When you look at equities with the d0llar at 78 than equites have fallen. Last summer crude was at $80 when stocks fell, crude goes from $80 to about $56 in January and the market goes up about 17%, d0llar doesn't do much of anything. Now when crude flows from $90 to about $65/$60 which according to the chart is what crude should do, these Petrol D0llars are going to flow someplace and the place they always seem to go is shitty stocks. I wouldn't bet against a earnings rally, either direction, shitty earnings means rate cut or good earnings and stocks head higher, won't matter.

[Gordo]

Re: Beartrap

I hope Tet is right.

On 11/7/07 at 12:00 PM, I bought $25,000 worth of June 2008 70 puts (29 contracts) at .79 per barrel premium when oil was at $96.75.

I've got 191 days to find out.

[Guest]

Re: Beartrap

Gordo -

You've got a lot of courage putting on a position like that - or a lot of spare change.

I've been reading in recent days that we'll see a break in oil right around 100 - so that sharp pullback is coming right up with high probability as we are closing in on 100 fast.

However what I read was this pullback was going to run down to 80, or not much lower. I personally don't trade even the smallest option, although I made some good money on Aussie dollar trades three years ago for six months before a Euro Pacific broker told me peremptorily to get off my hobby horse on those positions.

I took his advice and have not touched an option since, which is not to say a lot of people don't make money on them.

However the articles I've read are putting the likely retracement down to about 80, so my best advice to you is to dump your options positions at best available dollar as you see this pullback get anywhere near 80.

I would not stick around to discover further moves out into your 190 days.

I've read a lot about the drivers of this current bull market for oil - anyone putting this size of options trades into shorting oil should definitely read all they can on the fundamentals driving this - and that implies reading a good deal more than six month technical indicators.

I hope you won't dislike me for offering up these words of caution. I think we'll see $250 oil in the next 5 years, so anyone playing puts on oil should have his thesis pretty well nailed down to the floor first. Frankly this seems to me like a pretty wild-eyed trade.

My advice (which you did not ask for) is to get the hell out of those positions on the next pullback. You may see oil drift down close to 70 in a worse case, but I don't see where you see any downside even an inch below that number.

All respects to Tet, who I know disagrees on this, but you should cut the cord on this one as the risk built into the macro trend for oil going into 2008 / 2009 is far higher to shorts than even the most glittering reward warrants on that size of put. Geopolitical risk alone makes your oil put poorly assessed in terms of risk / reward.

Better someone bums you out now, than events bum you out more a few months down the road.

Lukester

[Gordo]

Re: Beartrap

I personally don't trade even the smallest option,

Lukester, you are a smart man. I have read that 95% of all futures/options traders lose money. This is like playing Russian roulette with a 20 cylinder revolver in which 19 of the chambers have bullets. Not too inviting.

Thanks for the advice. I'd just like to see oil go to 80 so I'd have a chance to follow your advice or not.

[Guest]

Re: Beartrap

Gordo -

If you see a pullback to 85 - 84 - 83, I'd take it. Take your lumps, and keep your powder dry.

Oil even has a decent chance of going down to 75. If I realise I've 'made a mistake', I always consider it 'lucky dues paying' to be willing to accept a moderate loss to make the most conservative exit I can.

A little pain helps the memory stay around for a long time. ;)

Lots of opportunities around to make that back in the next year I'm guessing.

You must be aware there's potential to make 150% or more in the next five years simply holding some metal. Some people are starry eyed and saying 800% or plucking some other return out of the air.

Whatever.

What's wrong with a 30% per year return? Of course it's not technically 'getting rich' it's just 'maintaining your purchasing power', but it sure makes other inflation-ravaged things you can buy with the proceeds seem cheaper to me.

That's looking ever more like a pretty low risk category in this decidedly squirrely currency environment. No need to light up your investments like "Roman Candles"!

______

[Gordo]

Re: Beartrap

Lukester said

What's wrong with a 30% per year return?

Lukester, I'd take 30% a year in a New York heartbeat.

[GRG55]

Re: Beartrap

Lukester said

Lukester, I'd take 30% a year in a New York heartbeat.

Seems to me crude oil has been rather positively correlated to economic activity this decade (which seems to be a source of continous surprise to Bubblevision commentators).

If crude oil falls (and I am not saying it cannot fall a considerable amount...it may) we can be quite certain global stock markets will also be falling, and a credit induced global economic contraction is taking hold. That's something every Central Bank and Economic Developement/Finance Ministry will fight by every means at their disposal. That's what you are betting against if you are betting against crude oil.

[touchring]

Re: Beartrap

Bottoms always seem to be easier to call than tops. November 7th Cisco announces, Saudi's go to 9 million bpd from 8.7 million November 1st and I believe we'll get some warm weather announcements about this time. This winter Russia exports don't shut down like they normally do as well. I think this Turkey invading Iraq falacy plays out for a couple more weeks and then would be a time to short. Volatility should be high until then. My comments were geared more to equities and I believe a drop in crude will be offset with a rise in stocks.

How about the Iran war? Did you consider that a possibiity? :eek:

[Gordo]

Re: Beartrap

Not a good sign for oil shorts.

Houston Chronicle 11/9/07
The Energy Department has signed contracts with Shell Trading Co., Sunoco Logistics and BP North America to deliver 12.3 million barrels of oil over a six-month period to the nation's emergency oil stockpile.
The Strategic Petroleum Reserve currently contains about 695 million barrels of oil — enough crude to keep the U.S. economy running for 56 days if imports were suddenly cut off.
In 2005, Congress authorized the administration to expand the reserve to 1 billion barrels.
Since August, the administration has been adding to the reserve oil paid to the government as royalties by producers operating in the Gulf of Mexico under a program known as "royalty-in-kind."
Currently, oil companies are providing about 50,000 barrels a day to the reserve, under a plan to expand the reserve by a total 8.6 million barrels by the end of January, Energy Department officials said.
At the end of January, Shell, Sunoco and BP will begin collecting oil from producers and delivering about 70,000 barrels a day to two reserve storage sites in Texas and Lo

[Guest]

Re: Beartrap

Gordo -

Picked this up off a (minor) newsletter I read:

___________

We are ALSO due for a brutal downward correction in oil prices, as the Saudi's miscalculated global demand in 2006 and are about to add another 500K barrel production.

<< At the November 1st meeting, the Saudis announced they will increase production by 500,000 barrels to 8.9 million barrels a day. Expect a big drop in a few months as the Saudis want to keep their customers happy and that occurs with $60 not $80 oil.

___________

There's a better than even chance the Saudi's quota move may significantly soften prices. What's required here is to keep a steady nerve and be ready for a nimble exit from puts in the 82 - 85 dollar per barrel area. I think you've got a good shot to see it, although the fact we are heading into the winter is not great seasonally.

Don't know what your bass is, but you presently have only a 25% loss on your original position (e.g. 6K), if it were me, I'd just exit now and be quit. You may very well see oil go right down to 70, in which case you'll be thinking murderous thoughts about me and my advice. But that's the thing about exiting highly leveraged trades you've decided you don't like - the trick is to just say goodby to a chunk of cash without excessive regrets and not try to be cute with the market timing calls.

I said goodby to over 20K in previous market profits this past August and just switched off the "regret / keen money attachment" synapse in my head. Works great when you get the hang of it. You can be back to whole inside of a year in other positions.

Never get trapped by the reluctance to take a loss. Now if I'm dead wrong you can come looking for me with a 20 gauge shotgun.

P.S. I just noticed the "in a few months" caveat in the above newsclip. For time sensitive positions this is a tough break indeed.