Question: How do I capture upside on energy volatility without getting hurt on potential downside? Answer: A butterfly spread

摘要

As of this writing the current spot price for crude oil is $108.67 per barrel. The price for the December futures contract on the NYMEX is $106.36 per bbl. Just to show how the world has changed, in June 2008 oil was approaching $150 a barrel. Within six months the price free fell by almost 65%. Of course, that price drop was in the midst of a complete economic meltdown. Actually, over the past three years the price of oil has been in the $80-$ 100 vicinity. While economic meltdowns aren't usually telegraphed ahead of time, the markets don't seem to be anticipating one. The drumbeats of war are once again reverberating in the Middle East. The U.S. is considering an attack on Syria, which has little oil of its own but oil exports could be curtailed if the potential conflict spreads throughout the region. A drop in supply could send prices skyrocketing.