Options Trading Manipulation: Two Charged with Manipulating Oil Prices

by johnu

Options Trading Pair Accused of Manipulating Oil Prices

(Calgary Herald)

Earlier this week, the US futures regulator sued two veteran oil traders along with their employers, the Arcadia Energy Suisse SA and Parnon Energy Inc. (both owned by by Norwegian shipping magnate, John Fredriksen), for allegedly booking $50 million in profits through the manipulation of oil prices in 2008.

The Commodity Futures Trading Commission has accused the pair of options trading employees at Parnon and Arcadia of carrying out a cross-market options trading trading scheme between January and April of 2008. The options trading scheme involved the accumulation and sell-off of a substantial position in physical crude oil in order to manipulate futures prices.

Specifically, trading activities involved the interplay between physical oil storage held in Cushing, Oklahoma, along with the delivery point for the US benchmark futures contract plus the derivatives market. Apparently, the pair would try to boost prices by purchasing commercial supplies of crude around Cushing as well as force prices lower by dumping crude in order to depress prices and then to profit on short options trading positions.

However, the charges appear to not be related to crude oil’s recordbreaking spike to almost $150 a barrel back in 2008.

Options Trading Tip: The Advantages of Spread Trading

(InvestorPlace)

An options trading spread is an options trading strategy that involves the purchase of one option and the simultaneous sale of another. Given this very broad of a definition for an options trading spread, there is a huge number options trading strategies that can be undertaken.

More importantly, options trading investors should note the following three advantages of a bull call spread verse just buying a call option outright:

• Less Risk. Given that an options trading spread involves the buying and selling of options, the premium received from the short option will help to offset options trading costs. Hence, this will also reduce options trading risk associated with the trade.
• Lower Theta Risk. When an options trading investor purchases an option, they will acquire a negative Theta position. Moreover and has time passes, this type of options trading position will loose value. On the other hand and when an options trading investor is selling an option, they are actually profiting over time. Hence, entering a spread trade can reduce one’s exposure to time decay by as much as half.
• Lower Volatility Risk. Options values will increase when implied volatility rises but decrease when implied volatility falls. However, spread trades can be used to minimize volatility to some degree.

In other words, spread trades can be used to lower the amount of money an options trading investor risks and limit his or her exposure to both time decay and implied volatility.

Options Trading Bulls Charge Up on Tesla

(MarketWatch)

Options trading investors are taking up positions to benefit from the rise in shares of Tesla Motors Inc. after the car company announced that it will sell a batch of stock in order to fund a new “crossover” model.

Specifically, options trading investors are purchasing bullish calls that grant them the right to buy shares for $30 by June expiration. In addition, options trading investors are targeting calls with a $30 strike that will expire in July.

The announcement sparked unusually heavy options trading for Tesla’s options and about 18,000 calls versus about 4,700 puts exchanged hands. In fact, overall options trading volume in Tesla’s options were the second-highest since the company had its IPO.

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