March 12, 2008 at 10:00 am by Tom Lydon
Investors are feeling bearish on oil and are snapping up puts on the related exchange traded funds (ETFs) as a result.
Apparently, investors believe that yesterday’s record $108.75 a barrel is the top, reports Reuters. Boy, we hope they’re right. In the United States Oil Fund (USO), 52,000 puts and 9,138 calls changed hands – three times the normal volume.
As we explained yesterday, puts are an option in which you buy a fund and have the right (but are not obligated) to sell it at the "strike price." In the case of commodities, particularly oil, volatility is par for the course. Options are a way to hedge your bets and protect your portfolio.
So far today, oil is down after a report that showed an unexpectedly large increase in crude oil supplies, reports Tim Paradis for The Associated Press. Mercifully, it’s back below $108. But will this recent market optimism stick?
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