Weekly Update: December 2, 2015

| December 2, 2015

Weekly Update: December 2, 2015


Big Picture Outlook:

As I mentioned in yesterday’s trade alert, trading in many important commodities has become decidedly choppy and directionless the past week.  Crude is still trading at the bottom of a range near $40 a barrel while gold and silver are stuck near $1,060 and $14 an ounce respectively.

As you’ve likely realized by now, this is not the type of price action that’s beneficial for our style of option trading.

A number of open option positions (see below) are experiencing significant time decay due to the choppy conditions.

Let’s check in on a few of them now…


Portfolio Highlights:

Note: I won’t update every open position in every update.  I focus on the positions with significant news or price movement.

. . . . ConocoPhillips $COP January 15, 2016 $57.50 calls

After a snapback rally above $55 last week, $COP is succumbing to another bout of lack luster trading.  Shares of the oil and gas explorer are crossing the tape just shy of $53 as I write.

Since conservative investors should have already closed this trade when $COP hit the risk control line at $53.90 on November 11th, only aggressive traders should be holding through to expiration in January.

. . . . iShares Silver Trust $SLV December 18, 2015 $14 calls

Another week of directionless trading for $SLV…

The silver tracking ETF is trading at $14.04 as I write.  Since our risk control line at $13.25 has yet to be triggered, conservative and aggressive investors alike are seeing considerable time decay in these call options.

Here’s the deal…

With the next FOMC meeting scheduled for December 16th, this trade will likely come down to the wire.  If you’re aggressive, hold these calls right through the meeting- it will either pay nicely or it pay nothing at all.

If you’re conservative, you might consider closing this trade to preserve any remaining value left in these call contracts.

. . . . US Oil Fund $USO December 18, 2015 $13.50 calls

This Friday’s OPEC meeting has crude bulls cowering in the corner. West Texas Intermediate (WTI) Crude is testing the $40 a barrel area as I write.

Obviously there’s plenty at stake in the oil market this week.  If OPEC surprises the market and cuts production, we could see a remarkable rally in WTI and $USO by early next week.

While such a scenario is fun to think about, we have to be realistic…

The way I see it, it’s highly unlikely OPEC cuts production this Friday.  Saudi Arabia, the de-facto leader of the Middle Eastern oil cartel, won’t agree to cuts unless other major world producers (Russia) agree to do the same.

As a result, these calls will likely turn into an all or nothing trade like $SLV above.  If OPEC cuts- we win.  If OPEC doesn’t cut- we take a loss.

With $USO hitting our risk control line at $12.60 today, only aggressive traders should consider holding these contracts through the OPEC meeting and on to expiration.


Category: Commodity Trading