by Bryan Perry 07/22/08
With crude oil prices rising higher, there may be little we can do as consumers to fight for lower prices at the pump or, at least, get prices capped where they are.
Oil futures surged following the sheepish increase in production offered by OPEC and comments from oil tycoon T. Boone Pickens, who forecast that crude prices could hit $150 per barrel by the end of the year. But is this parabolic increase sustainable in the short term?
There's one camp that says the surge in prices is being fueled by speculation and there's the other camp that says it's purely a supply and demand issue. Regular unleaded has surpassed $4 a gallon here in the Washington, D.C., area, and it's not just the drivers who are hurting.
Not only are the major airlines hiking prices to new highs and reducing the number of seats and flights available, but they're also trying to improve their bottom line wherever they can to make up for their revenue shortfalls -- at the ultimate expense of the customer, to whom they have to pass along the impact of rising fuel prices.
Consumers were outraged recently when the airline sector collectively decided to charge $25 for a second piece of checked luggage per flyer -- which didn't necessarily faze the business-traveler set (which travels pretty light). But it's already getting more and more expensive to operate a family and maintain a budget, and these seemingly small charges can certainly put a dent in those family vacation plans.
Now American Airlines (AMR) is setting the precedent for charging $15 for the first bag checked, guaranteeing an easy $40 per passenger who either overpacks or is using up all of his or her vacation days in one shot and needs a decent wardrobe selection.
What's next -- are we going to have to pay for carry-on luggage as well? If too many folks try to bypass checking their luggage in favor of stuffing more into the overhead bins, I wouldn't rule that out as a possibility.
We might not be able to fight that particular trend on an individual level. But as traders, we've got a real opportunity to put cash back in our wallets, several times over, by opening up our options trading portfolios to the names and sectors that are soaring and even those that are suffering.
BUY THE DIPS, SELL THE RIPS
While consumers are checking into frequent-flyer deals that can either waive or reduce altogether the extra charges, the market ignored the run-up in energy prices -- instead levitating on a couple of economic reports that didn't really seem to reflect the reality of Main Street, USA.
A lower-than-expected reading on inflation from the Consumer Price Index (CPI) report and a better-than-expected reading on new home sales and building permits for April, provided the headline impetus for the bulls to keep pressing the shorts into a corner, forcing more short-covering and some net buying, but on light volume.
Light volume, whether to the upside or downside, is typical for this time of year and especially around a market holiday. Movements become more-pronounced because fewer people are in the driver's seat.
Until a time comes around again when we're able to extend our holding periods for long-side trades, the strategy is simple: Keep it short and sweet.
You don't have to buy the same number of contracts with every options trade you make, especially when trading the options of higher-dollar stocks.
Short Interest Reflects Trader Sentiment
You don't have to cash out when stocks and indices start dropping. Learn how to take advantage of the chaos around you.
This isn't our parents' stock market, thanks to the explosion of the derivatives markets during the past few decades that we can use to our advantage!
Create Options 'Basket' Profits
Basket trades are an amazing way to make profits, whether you're a swing trader going for the quick gains or an options trader looking to leverage those moves for up to 10 times the gains.
