Hedging

*** CME/NYMEX will be launching Gasoil options (Asian, American & European style) on Clearport this weekend. Hudson Capital Energy will be making markets and providing liquidity and hedging strategies on these options 24hours/day with our offices in Singapore and NY shortly. Fuel Oil and JetKero options will also follow within a few weeks.

Commodity and equity markets reacted swiftly yesterday to the US Federal Reserve lowering interest rates half a point to 1%. However, the sharp move higher may soon prove fleeting as the move by the Fed is seen as largely symbolic and will have little to no effect on the global economic slowdown and the resulting drop in demand for raw materials. WTI crude oil pushed towards $70 before backing off to below $68.

Implied volatility softened in early trading yesterday, allowing downside producer hedgers several compelling reasons to re-enter the market. As the crude price rallies, long put strategies will of course become cheaper. Second, with implied volatility softening, option premiums will decrease even further. In early Asian trading this morning, the WTI December 2008 $65/45 put spread was offered at $4.25. The put spread was also quoted against the December $90 calls. This 3-way enables the downside or bearish hedger to purchase the $65/45 put spread and sell the $90 call while only putting $2.00 of premium at risk. That's a maximum loss of only $2,000 should crude oil stay below $90 and above $65 in December. Max gain on the trade would be $18,000 per contract.