Thursday, November 12, 2009

$500 Oil Calls Set Hyperinflation Probability

US oilman Boone Pickens said today  he thinks oil prices will be above US$100 per barrel at some stage during 2010 and US$300 within 10 years.

Pickens isn't alone in his bullish outlook.  Quite a few December 2015 NYMEX WTI crude oil US$500 strike call options have been purchased since the beginning of October this year (see chart below).

So someone out there thinks the probability of crude trading above US$500 per barrel by December 2015 is worth consideration at a value around US$1 per barrel.  That’s a big premium for a big oil number.

The oil market is placing a higher probability than other asset markets on the chance of outsized inflation.

(click chart to enlarge)

For more on oil options check out Chapter 19 of Oil 101.
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