Weekly Update: December 9, 2015

| December 9, 2015

Weekly Update: December 9, 2015


Big Picture Outlook:

Well folks, here we are…

Crude oil has once again dropped into the mid-$30 a barrel range. But unlike the last quick dip into this zone in August, this foray may last a little longer.

As you likely heard, instead of OPEC cutting production in last Friday’s meeting, they chose to raise their output ceiling to 31.5 million barrels a day from 30 million.

Although the Middle East cartel was already producing above their quota over the past year, raising the ceiling gives them the leeway to produce as much as they want.

Why do such a thing?

First of all, we knew Saudi Arabia, the de-facto leader of OPEC, wouldn’t agree to cuts without cooperation from other producers.

But raising the output ceiling is basically a permit to flood the global market even more.  Remember, as much as 1 million barrels a day of Iranian exports may come back online this year if sanctions against the country are finally dropped.

Is there any hope for crude bulls?

Given the above information, the only thing that can send crude back to higher ground is a sharp slowdown in US production.  While this trend is starting, US output is proving to be painfully resilient.

Let’s check in on a few of our open positions…


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

$COP plummeted back below $50 a share on last week’s OPEC news.  Clearly, this is not the outcome we had in mind.

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 these calls for a rebound.

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

Silver bulls caught a glimmer of hope late last week when the Euro surged against the US Dollar.  The metal roared to just over $14.50 an ounce last Friday as the greenback fell.

But as I write, silver bulls are once again retreating, sending the metal back towards $14.

We’re quickly running out of time in this trade.  With expiration just a week and a half away, we need a big bullish move soon.

Remember, the next FOMC meeting is coming December 16th.  That means this trade will come right down to the wire.  If you’re aggressive, hold these calls right through the meeting- they will either pay nicely or end up worthless.

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 and $15.50 calls

Looks like we’ll be chalking both these trades up as a loss.  We knew the risks of holding through the OPEC meeting and it didn’t work out in our favor.

Keep in mind, $USO hit our risk control line at $12.60 last week.  That means only aggressive traders should have been holding these contracts through the OPEC meeting.

With expiration coming next week, we might as well mark this trade as officially closed.

. . . . Freeport McMoran February 19, 2016 $9 calls

Unfortunately, it didn’t take long for $FCX to tag our risk control line at $7.50.  The copper miner sank to new 52-week lows the past few days as investors fretted over continued weakness in copper and other commodities.

To be sure, we still have plenty of time left in this trade.  So if you’re aggressive, you may want to hold on for a potential rebound to higher prices in copper and $FCX.

. . . . Newmont Mining $NEM January 15, 2016 $21 calls

Our most recent trade is pulling back to moving average support as the price of gold lingers at $1,070 an ounce.  No doubt about it, gold will need a solid upturn in order for this trade to work.

Of course, next week’s Fed meeting and the resulting price action of the US Dollar will be pivotal for the future direction of gold.

Our risk control line is $18.50 while our profit targets are at $22.50 and $25.00.


Category: Commodity Trading