Earlier this month, the NYMEX hiked margins on its petroleum complex futures repeatedly earlier this month, and that has finally appeared to have had an effect. Open interest is down, although some of that undoubtedly had to do with contract expiration.
But while open interest has shrunk from 1,556,921 contracts on November 9 to 1,381,981 contracts Monday, prices have failed to remain contained.
After dropping like a rock to $90.15/barrel November 13, the front month contract roared back to more than $97.50/barrel Tuesday.
So if long positions were flushed out of the market by the hike in margins, helping to push prices down from record highs, it appears that the trip down to $90/b served as an opportunity for traders with short positions to get out at a relatively "cheap" level.
It doesn't appear that there has been any extreme options buying on the latest rally. As of November 19, the $95 call has 11,032 contracts open, the $100 call 24,762 contracts and the $110 call 27,917 contracts open -- all about the same as on November 14.
With non-commercials having trimmed their net long futures position down to just 27,556 contracts as of November 13, and small speculators -- the so-called "non-reportables" -- having narrowed their net short futures position to just 4,430 contracts, it's hard to see what effect another hike in margins would have on moderating speculation in the market.
It appears that the speculation has moved over to the cheaper arena of options, as options open interest has risen from 3,425,401 to 3,535,072 since November 14. The question is, will the larger options positions lead to more volatility, which would undo the effect of the hike in margins?
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