Weekly Update: October 16, 2013

| October 16, 2013

Weekly Update: October 16, 2013


Commodity Watch:

Believe it or not, Washington politicians finally came to an agreement today… 

In order to prevent the US government from defaulting, Democrats and Republicans agreed to extend the debt deadline through February 7th of 2014.

It’s not ideal, but it’s better than an outright default by the US Treasury.  That ugly scenario would have started playing out tomorrow without an agreement.

In reaction to the positive news, crude rallied to just over $102 a barrel.  However, the EIA inventory numbers we usually see on Wednesday are delayed due to the government shutdown. 

As long as today’s agreement passes the House and Senate tonight, EIA crude and natural gas inventory readings should resume tomorrow.

I expect US crude inventory levels continued higher this past week, which will likely put additional pressure on prices as we head into Fall.

Let’s get to our open trades in natural gas, silver, Ags, and gold…


Portfolio Recap:

. . . . US Natural Gas Fund (UNG) October 2013 $19 Calls

Natural gas rose to $3.85 mmBtu in early morning trading today.  As a result, UNG rose to a multi-week high near $19.85. 

Now listen closely…

Our $19 calls expire at the end of this week.  If UNG closes above $19.00 on Friday, and you still own the UNG $19 calls, you’ll end up owning UNG shares next Monday morning.

Unless you want to own shares of UNG (100 shares for every option contract you purchased), you need to close this trade by market close on Friday, October 18th.

Natural gas is up from where we initiated this call trade, but we didn’t get the rally we were looking for to make it profitable. 

As a result, you’ll likely be closing this trade at a slight loss on Friday.

. . . . iShares Silver Trust (SLV) October 2013 $22 Calls

Silver had yet another lackluster week in the face of huge Washington uncertainty.  Our $22 calls will likely expire with no value this Friday.  Be ready for another trading opportunity in silver soon!

. . . . PowerShares DB Agriculture Fund (DBA) November 2013 $26 Calls

Ag commodities worked their way higher in this week’s trading.  As a matter of fact, corn is finally showing signs of life at $4.44 a bushel.  With cold weather entering many parts of the US, we could start seeing some unexpected crop losses.

But that’s just the start of it…

Cocoa, sugar, soybeans, along with a handful of other Ag assets, are also poised to continue higher in coming weeks.  These commodities should have the wind at their back for the next few weeks thanks to the decreasing odds of Fed tapering in 2013.  

Let’s keep holding our DBA November $26 calls for further upside in the Ag complex.   

. . . . iShares Comex Gold Trust (IAU) November $12 Puts

Yet another volatile week of directionless trading for gold.  As you know, we established this put trade Monday expecting gold would fall when a Washington debt ceiling deal was announced.

Well, the deal was reached today, and gold didn’t drop. 

So what gives?

The resolution Washington politicians came up with is a poor one.  Yes, they averted an imminent financial crisis. But in a nutshell, all our elected officials did was put off making the real decision until February of next year. 

As a result, we get a few more months of this market uncertainty.

Let’s leave this trade open for now.  We need to see gold’s reaction to the reopening of the US Government before we officially pull the plug on these IAU puts.


Category: Commodity Trading