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#218615 - 04/01/12 10:48 AM Re: Placing the real blame for high gas prices [Re: keysersoze]
issodhos Offline
Pooh-Bah

Registered: 09/29/05
Posts: 12581
Originally Posted By: keysersoze
My venture was several years ago with a contract in a 100 unit (barrels) at $75 per unit. One of my son's urged me into an area I do not nor have ever felt comfortable with - options/futures.

After a month or so I bailed at $92 since you can sell at any time if there is a willing buyer. My son held and sold at $132.

So, in your case your contract was "in the money" so you sold and were a winner. who was the loser? If it had never gone 'in the money", would you, as the speculator" have been the loser? Did your purchase of an option to buy oil at 75 dollars a barrel make the price of oil go up?
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"When all has been said that can be said, and all has been done that can be done, there will be poetry";-) -- Issodhos

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#218618 - 04/01/12 11:17 AM Re: Placing the real blame for high gas prices [Re: issodhos]
itstarted Offline
old hand

Registered: 01/27/03
Posts: 6363
Loc: Florida/Illinois
Originally Posted By: issodhos
Originally Posted By: itstarted
The question assumes simple transaction... In fact, one does not purchase an option, per se. That, is probably the reason why there is so little discussion about derivatives on this forum.

Nice try. Just answer the question.


You choose not to read about derivatives, which is not the same as an option, but derived from the value. Derivatives are not usually "settled" as with the delivery of product. Swaps occur much in the same way as what happens when a business changes hands. Every contract, debt, account receivable is not settled with the old owner before the sale. So it is with derivatives. The swap is written to include all factors. The plus perfect example is the value of the Freddie/Fannie Derivatives. The amount on the books bear little relationship to the actual value of the mortgages. Houses that have been sold, bulldozed, burned down, or lost 20 to 80% of the value are still carried at an unrelated book value.

Take a look at this (comparatively simple) standard derivative formula, and know that some dervative contracts run to 8 pages or more.

source

And here is a WTI Oil (hedge) Swap Derivative formula
source
If you make it to this page, look on the right hand side to see some of the complex types of swaps and speculative derivative trades.

It is only very recently... (months) that there has been a crack in the door to allow the average investor to become involved in derivative trading. The options spoken of in some of the above posts, are indeed, futures trading options... but that is not where the speculative bubble is located.

Again, the reason there is so little discussion here, in the media, and indeed in Congress... is that so few understand what goes on in unregulated Futures Trading.

I'll bow out here, and leave this kind of discussion to those who know what they know... It's easier.
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#218621 - 04/01/12 11:50 AM Re: Placing the real blame for high gas prices [Re: itstarted]
issodhos Offline
Pooh-Bah

Registered: 09/29/05
Posts: 12581
Originally Posted By: itstarted
Take a look at this (comparatively simple) standard derivative formula, and know that some dervative contracts run to 8 pages or more.

source

And here is a WTI Oil (hedge) Swap Derivative formula
source

Again, the reason there is so little discussion here, in the media, and indeed in Congress... is that so few understand what goes on in unregulated Futures Trading.

I'll bow out here, and leave this kind of discussion to those who know what they know... It's easier.

Yeah. The formulas do on computers and calculators what speculators used to do long-hand or on information recieved. At the end of the day the speculator will still either be a winner or a loser on any given transaction. the question stands.
_________________________
"When all has been said that can be said, and all has been done that can be done, there will be poetry";-) -- Issodhos

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#218622 - 04/01/12 12:01 PM Re: Placing the real blame for high gas prices [Re: issodhos]
keysersoze Offline
journeyman

Registered: 12/01/11
Posts: 881
Originally Posted By: issodhos
Originally Posted By: keysersoze
My venture was several years ago with a contract in a 100 unit (barrels) at $75 per unit. One of my son's urged me into an area I do not nor have ever felt comfortable with - options/futures.

After a month or so I bailed at $92 since you can sell at any time if there is a willing buyer. My son held and sold at $132.

So, in your case your contract was "in the money" so you sold and were a winner. who was the loser? If it had never gone 'in the money", would you, as the speculator" have been the loser? Did your purchase of an option to buy oil at 75 dollars a barrel make the price of oil go up?


What made the price go up was those willing to pay $76....$77....$132. Those prices are eventually represented at the pump.

What happened is who ever sold it for $75 regrets it and in that case you would have to go to the commodities traders and find out exactly where the contract originated? Another person selling it? From what I understand most is just a direct purchase at a guaranteed price from one of the nationals. I'm sure my contract might have been embedded in a major purchase that may have been in the tens or even hundreds of millions. That major purchase could also have been part of the dealings of a significant financial house since they are up to their eyeballs in it. Maybe they sell some to "cover" their backside in case of a downturn?

When you get into this stuff if it is futures/options, short or long selling or just a straight stock purchase it is a gamble. So on this one I made some money and then comes my investment in CMGI.

Forgot to add this. I am still involved only via the ETF OIL. Bought in at $21 a share. A gazillion ETF's to play anything you want.


Edited by keysersoze (04/01/12 12:05 PM)
Edit Reason: additional info
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#218626 - 04/01/12 12:14 PM Re: Placing the real blame for high gas prices [Re: keysersoze]
issodhos Offline
Pooh-Bah

Registered: 09/29/05
Posts: 12581
Originally Posted By: keysersoze
What made the price go up was those willing to pay $76....$77....$132. Those prices are eventually represented at the pump.

So it was not your speculation, but underlying market variables and perhaps geopolitical issues that made the price of oil rise to and exceed your strike price?
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"When all has been said that can be said, and all has been done that can be done, there will be poetry";-) -- Issodhos

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#218629 - 04/01/12 12:43 PM Re: Placing the real blame for high gas prices [Re: Scoutgal]
NW Ponderer Offline
Moderator
veteran

Registered: 09/09/11
Posts: 11932
I realized after the challenge, that trying to address the tangential issues that Issodhos has made would cause thread drift, so I will not pursue it beyond this response: Obama Campaign response; Obama opens new oil drilling offshore in climate drive (March 31, 2010); The Truth About Oil.

For some reason, I cannot access my TIME subscription to quote from the last article.

One of the MOST misleading things about the Koch bros hit piece (Outside group targets Obama record on energy) is that the domestic oil industry increased production because of Obama's election. It was all over the news at the time. Much of it was for the same reason that gun sales went up, fear that there would be a crackdown on domestic production, and has not abated despite the loosening and streamlining of regulations. Most of the knocks on Obama are simply untrue. Bogus Oil Claims by Crossroads GPS
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A well reasoned argument is like a diamond: impervious to corruption and crystal clear - and infinitely rarer.

Here, as elsewhere, people are outraged at what feels like a rigged game -- an economy that won't respond, a democracy that won't listen, and a financial sector that holds all the cards. - Robert Reich

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#218630 - 04/01/12 01:03 PM Re: Placing the real blame for high gas prices [Re: issodhos]
keysersoze Offline
journeyman

Registered: 12/01/11
Posts: 881
Originally Posted By: issodhos
Originally Posted By: keysersoze
What made the price go up was those willing to pay $76....$77....$132. Those prices are eventually represented at the pump.

So it was not your speculation, but underlying market variables and perhaps geopolitical issues that made the price of oil rise to and exceed your strike price?


Correct. World tensions. Positive economic projections. Greed. But, alas, I have a very, very small part of it since I was in the game. I am the greed factor.

The idea of investing is to make money. Oil companies make money. Public pension funds love them. College endowment funds love them. Mutual funds love them. Joe and Jane investor love them.
_________________________
Only racists oppose my dictatorship.

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#218635 - 04/01/12 01:40 PM Re: Placing the real blame for high gas prices [Re: keysersoze]
issodhos Offline
Pooh-Bah

Registered: 09/29/05
Posts: 12581
Originally Posted By: keysersoze
Originally Posted By: issodhos
Originally Posted By: keysersoze
What made the price go up was those willing to pay $76....$77....$132. Those prices are eventually represented at the pump.

So it was not your speculation, but underlying market variables and perhaps geopolitical issues that made the price of oil rise to and exceed your strike price?


Correct. World tensions. Positive economic projections. Greed. But, alas, I have a very, very small part of it since I was in the game. I am the greed factor.

The idea of investing is to make money. Oil companies make money. Public pension funds love them. College endowment funds love them. Mutual funds love them. Joe and Jane investor love them.

Let us not short-change the progressive movement. It also loves Oil companies -- indeed the corporate structure is milk and honey to them. They just hate the fact that the after-tax profits go to private entities instead of into the tax coffers where progressives can influence where it will be spent. After all, when was the last time you read where they were complaining about the evils of state-owned oil companies? ;-)
_________________________
"When all has been said that can be said, and all has been done that can be done, there will be poetry";-) -- Issodhos

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#218652 - 04/01/12 02:58 PM Re: Placing the real blame for high gas prices [Re: issodhos]
keysersoze Offline
journeyman

Registered: 12/01/11
Posts: 881
Public pension funds and endowments tend to be to the left of center - unions and colleges. Seems political perspective changes when confronted with fiscal perspective.

Enough has been posted on this site showing the contributions made to candidates of all political ilk by oil companies. Republicans - last I looked - seemed to have about a 60/40 edge.

Saw an interesting article in the paper today about heavy investment by Shell in green companies. Not unusual as oil companies know they are operating near peak oil and a smart business plans decades ahead. Oil companies know energy. No reason to be Polaroid or Kodak in 2050.
_________________________
Only racists oppose my dictatorship.

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#218795 - 04/02/12 07:35 PM Re: Placing the real blame for high gas prices [Re: issodhos]
rporter314 Offline
old hand

Registered: 03/18/03
Posts: 4832
Loc: Highlands, Tx
i don't know why i have to do your homework

subsidy: a financial aid supplied by a government, as to industry, for reasons of public welfare, the balance of payments, etc.

so the question is, do any of the sections of S. 2204 - The Repeal Big Oil Tax Subsidies Act satisfy the definition?

First let's see what the subsidies are and then apply the definition.

1. Eliminates Dual Capacity Tax Preference = restrict companies from claiming royalties to foreign governments as a credit against taxes
2. Repeal Domestic Manufacturing Deduction = repeals section #199 of American Jobs Creation Act (2004)
3. Modifies Intangible Drilling Cost Deduction = since 1986 oil companies have been able to immediately deduct 70% of intangible drilling costs
4. Repeals Percentage Depletion Allowance = previously repealed for oil companies but remain for some oil wells
5. Modifies Tertiary Injectants Deduction = currently allowed to deduct all expenses in current year ... modified to capitalization and recover costs over time
6. Eliminates Royalty Relief for Outer Shelf Deepwater Oil and Gas Production = repeals sections #344 and #345 of Energy Policy Act (2005)

These account for $20 Billion dollars a year in tax subsidies while oil companies earned $137 Billion dollars last year. Do any of these provide a public service or in some way benefit the government? The answer is no. (You can go through each one at a time and determine for yourself that only the oil companies benefit from these.) Policy studies by both conservative and liberal sources determined that none of these items would affect the price of gas in particular.

The only item which conservatives have raised an issue is #2, and their criticism is the bill targets oil companies.

However, the point which I was trying to make is republicans and conservatives in particular maintain that the subsidies are necessary incentives for oil companies to make money. Not only is it ridiculous but it is ridiculous. The oil companies don't need any incentive to make money. It is a natural by product of producing oil.
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