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We have been making money lately, selling call options at $90, when the market rises past $75. Our thinking is that oil probably won’t make $80, and then only in spikes. At more than $60 a barrel, demand is soft, probably flat. Things have to go wrong for oil to rise above that much. But now a surprise: It looks like a good time to sell put options, especially November options at $60. The NYMEX futures market is no longer trading on anything that resembles fundamentals. There is plenty of oil, and world demand grew by 0.7 percent last year, probably less this year. Maybe even no growth. But oil has been tracking the world stock markets of late. No real increase or decrease in demand, or cost of production. Oil is hopping around like a rabbit with a hotfoot thanks to the possibility that the world economy may slow, due to stock market doldrums (read, the subprime dump). But, investors are figuring out that the subprime loan segment is but one portion of the housing market, and the housing market just one portion of the real estate market, and the real estate market just one portion of the overall economy. In other words, we will survive this handily. So, the stock markets are rallying, and oil is rallying. We could see oil back above $75 this coming week. That being the case, look to sell November put options at $60 for $380, early on Monday. If NYMEX oil rallies past $75, then take your bearing, sell November call options at $90, and buy back your much less-expensive puts. In the long run however, keep an eye out for a secular decline in oil prices. New supply is coming online, while demand is soft. Virtually overlooked in the mainstream media, OPEC said in mid-August it expects less demand for its oil in 2008 than 2007. Total world demand would be flat, but outside OPEC supplies are increasing, and biofuels are coming on.

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