Gold Silver Reports — Your petrol bills could decline a tad over the next month as Brent crude, which has shed 18% since early June through Friday, cou ld potentia l ly cor rect by 5% or more over the next three weeks, options data on Atlanta, Georgia-based Intercontinental Exchange (ICE) show .
A 20% fall in crude price will mean that oil has entered a bear market, which bodes well for India where mineral fuels had a 25.32% share of India’s total import bill of `24.88 lakh crore in FY16. However, a weaker rupee could offset the fall in crude price .
“The situation is such that put writers (sellers of options) are grappling with significant losses,“ said Suresh Nair, executive director .
Put options –which those with a bearish outlook on an asset buy -expiring 25 days from now signal that oil could break well below $ 42 a ba r rel from Friday’s closing of $43.53.
The $42 put expiring on August 25 has witnessed a near doubling of outstanding trader positions or open interest (OI) to 10533 contracts over the past five trading sessions through Friday. Over the period, the price of the options jumped 27% to $1.19.This indicates traders are piling up on the option in the belief that oil will fall below $42.
The average price of the option since July 7 when trader interest in it began is around 8 0 c ent s. T he pric e on Friday was $1.19, which meant sellers of the options (who unlike buyers hold that oil won’t fall be low $42) had lost a significant amount. On the flip side, the OI of the $48 call (which buyers purchase feeling that oil would break that level) hit a low of 41 cents recently. Since trading interest in the option picked up from July 8, the price of 41 cents late last week is well below the average price of $1.6 since then .
“Clearly, the bears in crude options have pummelled the bulls and the writers of these options,“ said Viral Shah, who heads the commodity desk at Geofin Comtrade’s Mumbai office. As the average price of the puts since July 7 is 80 cents, the theoretical breakeven for the put sellers is $41.2.Below that they could encounter huge losses . — Neal Bhai Reports