Oil Put Options, MACD, RSI, Implied Volatilities, OVX Update

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"Oil Options Hit Highs as Verleger Predicts 44% Plunge (Update3)

By Alexander Kwiatkowski and Grant Smith

Sept. 21 (Bloomberg) -- Oil traders are paying more than ever in the options market to protect against a plunge in crude prices.

The gap between prices of options betting on a decline and those that would profit from a rise in oil widened to a record 10 percentage points, according to five years of data compiled by Banc of America Securities-Merrill Lynch. Crude stockpiles in the U.S. are 14 percent larger than a year ago and OPEC is pumping 600,000 barrels a day more than the world needs, according to the International Energy Agency."

"“There’s all this heating oil with no place to go,” Philip Verleger, a professor at the University of Calgary and head of consultant PKVerleger LLC, said in a phone interview. “I’m fairly certain we’ll see prices in the $30s this year.”"

"While Verleger has dropped a forecast made in July that oil would sink to $20 a barrel, traders are anticipating a decline. The Nymex’s most popular option is the right to sell December crude at $60 a barrel, with 69,244 contracts outstanding, exchange data show. The right to sell at $50 a barrel is the second most widely held. The December 60 put option rose today 47 percent to $1.66."
(Full Bloomberg article)


Today the December $60 put closed at $1.09 with 67,502 open. Premium was pulled down since that Bloomberg article. For recent views on oil put/call implied volatility visit these blogs.

Oil Put Demand, That Is (Daily Options Report)
Volatility Skew in Crude Oil Options (Don Fishback)
Bloomberg Option Blooper (Sigma Options)

Crude ($WTIC) looks like it's trading in an ascending triangle which is bullish however it must break above $75 with conviction. A break below $69 would create a lower reaction low and be bearish for crude (with volume). Technical indicators are forming a symmetrical triangle around critical levels. For example the MACD (Moving Average Convergence Divergence) and RSI (Relative Strength Index) are at the 0 and 50 level respectively. A run above or below those levels will decide the direction of strength and momentum. Oil has been riding the 50 day moving average higher and must break below that level (69.50) to prove it can move lower.


$WTIC Chart Courtesy of Stockcharts.com


Another interesting chart is the Oil Volatility Index ($OVX) which is hitting 40 lows for the fourth time. The OVX has been in the 40-50 range since May with oil trading between 63-75.


OVX Courtesy of Stockcharts.com

Will the reflation trade (commodities, S&P, levered loans, risk) just pause and refresh or will it shake out longs at some point? But with what the Government is doing how could they ever be nervous? Crude oil inventories are still up year over year. Read the DOE report ending 9/11. Inventory data is set to be released today. The American Petroleum Institute showed a rise in inventories on 9/18. Oil Falls After Industry Report Shows Increase in Fuel Supplies (Bloomberg). Stay tuned..

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