Publications: Notes at the Margin

OPEC's Need: A Tutorial on Options and an Opportunity (November 27, 2023)

 

This end-November report addresses how options affect market volatility. We explain that options hedging, not speculation, is behind the significant end-year oil price fluctuations. Furthermore, we show that Mexico’s “Hacienda Hedge,” which theoretically accounts for almost twenty percent of open interest at times, is a force for market destabilization. We conclude that one or more OPEC+ members could stabilize prices by writing put and call options to producers and large consumers, replacing the financial institutions whose application of modern options theory is another force for destabilization. We add that our previous report “Live by the Delta, Die by the Delta” might better have been titled, “The Delta Controls Oil Prices.”

 

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