While the WTI spread is interesting for the next few days, the strength in Brent spreads in the northsea has been strengthening steadily and looks to have picked up some momentum. The very prompt spreads, called CFDs(contract for difference) in the physical trading world, are in backwardation and this reflects the potential tightness building up in Brent related crude(which is everything east of the atlantic!). In the futures market, a simple back of the envelope calculation shows that with Brent spreads now trading only -0.80, the economics of floating storage is no longer viable for cash and carry, thus floating stocks are now offloading fast. This is self fulfilling as when stocks are drawn down, the structure will strengthen and in turn cause more stocks to be drawn. SFOT does not think this will be in full swing yet but in the past, these swings do happen very quickly when it does.
Given the last few days' volatility in the equities world, prompter volatility in WTI have also picked up. SFOT will use this to sell into the 35/60 stangle in COM9, achieving just under $3 of premium. A brave one which may induce some sleepless nights and possible nasty MTM admittedly.
Finally! Arsenal scores in the league. And Bendtner as well. A relief and a faint hope of champions league next season. For all of his heroics or luck last night, i hope we do not have to depend on Bendtner getting goals for much longer. Champions league or not next year, it pains SFOT to see this team becoming somewhat of a fringe side in the league this season and a serious overhall is needed to challenge for anything next year. That said, Come on Man city!(playing villa tonight)
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SFOT: interesting strangle albeit risky for $3 revenue. You noticed the convergence of imp vol and the hist vol curves since feb '09? One of the two is gotta give. You delta hedge with futures? This market is screaming to get out of its nearly 3-months range now and the put skew
ReplyDeletetells me it's the downside although plenty of call buying coming in now. So, who knows.....
@Anon: no this is pretty delta neutral to me to begin with and i will not really trade any -ve gamma. Prefer to hold as this sits pretty well with the overall portfolio. I have been slightly bullish the past week or so and have added to length so am less exposed to any upside spike.
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