Prepared by

Ira Epstein & Company

OPEC may have just dealt the death blow to near-term inflation. By raising member's oil production quotas by 10% last week, another of the world's major inflation generators appears to have been at least temporarily derailed.

But ask yourself this: Do the higher quotas merely legitimize the production cheating already going on? And will the legitimate higher production level really amount to much more supply? My answer: Not at all since in my opinion the level of production cheating will probably also rise 10% and more supply will be forthcoming. Which, in turn, may mean still lower prices, regardless of whether Sadaam gets flaky again or the winter gets colder.

Other inflationary pressures also seem to be distant memories. international conflict seems unlikely now. The fallout from the recent “Asian contagion” seems to be a general slowing of those economies, which inevitably could result in less worldwide demand for a number of basic commodities. With little inflation on the horizon, many central banks see no need for a non- interest generating “storehouses of value” and have decided to reduce, if not liquidate their holdings in gold. Now that the U.S. is on the verge of a balanced budget, the new “flight to quality” commodity appears to be U.S. debt instruments. It's a different world out there, at least for now.

I believe that one of the very few counter-trends to all this has to do with “El Nino.” Certain agricultural commodities (coffee, cocoa, sugar and, to a lesser extent, grains) appear to be bucking the general downward trends. If El Nino turns out to be more hype than reality, these commodities could suddenly head south as well.

What does all this have to do with options and option strategies? In general, prices are relatively stable lately. Which is great for a basic delta-neutral, short strangle approach. But quiet markets also mean generally lower option prices, which makes it more and more difficult to find large enough premium to sell. And there, I've said it: lower option prices. One of the beauties of commodities in general is that you can profit from downward moves as easily as upward moves. I suspect that there are some inexpensive puts lurking all over the board which will eventually become quite valuable. Because I'm writing about the really big picture these may take time to develop: long expirations may be indicated. And look out below.

December 2, 1997 Tim Zurick

Ira Epstein & Company

223 West Jackson, 7th Floor, Chicago, Illinois

Options Opportunities In Options

Spread Trading
Consensus National Futures and Financial On Line Index

Added to the WWW 12-05-97
Last updated on 12-05-97

Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com

wmeubank@ocp.kcmo.com