Here It Comes: Ready Or Not -- $100 Oil

Last week's record high of $96.24/ barrel is expected to be overtaken soon as many are taking out positions -- call options -- with prices ("Strikes") well above 100.00. FT.com reports a run on call options used for hedging -- insurance call purchases -- of up to $250/ barrel.

This means people are beginning to panic. But they are panicking properly by buying insurance against that which they see coming. If the price drops, the most one can lose is the price of the contract. This unique feature makes options very safe. Some 75-80% of all options contracts expire worthless, but this does not mean that no one made money on them. Several owners can make money on a single contract changing hands before the final holder is left with no chair when the music stops (expiration transpires).

This means that only 20% of contract holders actually take delivery of the good underlying the contracts.

This rush on oil contracts will probably have a gold and silver counterpart, and this means the U.S. dollar will likely drop further against other major currencies, even though it has lost an astounding 34% of its total value since 2001. This means a loaf of bread costing $2.50 in 2001 now costs about $3.75, using your chopped up dollars.

This is really bad and shows the effects of U.S. involvement abroad for an extended period. I hate to say "I told you so," but ..... I am still telling you so. The Iraq war is bad for the world economy, bad for the Middle East, its bad for our European neighbors, and its bad for America. Meanwhile terrorist enrollment climbs to well over its pre-Iraq invasion levels.

Reality check: how's the program going? If even one person enables Jack Cafferty to find these statistics, he is going to have a field day with them (I am sure he has researchers).

When oil hits the 100 mark, it would be worthwhile to tune him in. He is sure to have a few great one-liners ready to launch.

Want to read about the mad dash on oil calls? http://www.ft.com/cms/s/0/d5a8517a-8bdd-11dc-af4d-0000779fd2ac.html?nclick_check=1