So a VLCC tanker holds 1.1 to 2.2 million barrels of oil. (and the ULCC tankers hold up to 3.9 million barrels). With rates at $20k per day, I imagine it wouldnt take too many tankers sitting on this oil to drive the price up. Frontline (FRO) has about 27 empty ships right now that could theoretically hold about 50 million barrels of oil. The chairman of FRO is worth a little over $10 billion dollars, so it probably wouldnt be too hard for him to fill up a few ships, make money on the oil, have his company make money on the shipping rates by having his tankers full(which would in turn push the price of the stock up). The april 105 put options would cost him about $12.5 million at todays prices to cover 50 million barrels of oil, and every dollar oil goes up is $50 million in his pocket. If he did this(or some other billionaire or hedge fund), Oil could spike to $120-$140 pretty quick. Who doesnt want to make a billion dollars for a few months work while only risking $12.5 million in puts (+ $32 million in tanker rates which he would get back as his stock rises)
Hoarding the oil in his tanker company would help make sure FRO stays on top of the other shippers that compete with them in a time when shippers are suffering pretty hard.
Each contract covers 1000 barrels, so for 50 million barrels he would need 50,000 contracts.
ask price for 105 PUT apr is 2.43 so:
Did you consider time he would need to get this through the market with average of 20-30 contracts on the ask side.
Enormous slippage and very large time span for filling all this, if order of that ize would come to the market puts will sky rocket.
Doh, I think you are right. I was used to stock options where you just multiply the price by 100.
Market puts probably would not go up too much especially since he was buying 50 million barrels of oil If anything, prices would go down as buying 50 million barrels would push the price of oil up which would make the $105 puts cheaper. I suppose one would have to have alot of finese with this size of transaction, buying different months, selling futures contracts for the further out months to lock in a guaranteed sale, ect. Adding $100 million to the initial equation makes the risk alot higher though. Not sure someone would take that kind of risk, but then again...fredriken is buying ships now when he thinks tankers are going to keep getting hammered for a while, so he does like risk...