COLUMN-Nickel options boom shows scale of bulls’ ambitions – by Andy Home (Reuters U.S. – May 1, 2014)

The opinions expressed here are those of the author, a columnist for Reuters.

(Reuters) – Nickel is the only game in town right now among the base metals traded on the London Metal Exchange (LME).

LME three-month metal has edged back from the 15-month high of $18,715 per tonne reached on Monday but it is still up by over 30 percent since the start of the year. The next best performer among the LME pack is tin, trailing far behind with year-to-date gains of just 5 percent.

Nickel is trading a strong fundamental story with Indonesia’s ban on exports of nickel ore expected to turn the market from supply feast to supply famine in double-quick time. Extra spice comes in the form of possible sanctions against Russian producer Norilsk Nickel as geopolitical tensions around Ukraine ratchet up.

The company, which last year produced 285,000 tonnes of nickel, has not yet been targeted but the most recent sanctions include Sergei Chemezov, who sits on its board, suggesting the potential sanctions net is drawing closer.

Investment money has flooded into nickel in pursuit of this bullish narrative, both volumes and open interest mushrooming to record levels.

That the LME market is overheating is not in doubt. The scale of the price rise this year has wrong-footed even the most bullish commentators.

But such is the power of the narrative that any pull-back is likely only to attract fresh buyers eager to scramble aboard the bull train.

Just how high might nickel go, though? $20,000? $30,000? $40,000?


Some evidently believe so, judging by the nickel options landscape.

There are 6,902 lots (around 41,400 tonnes) of open interest on call options at the $20,000 strike spread over the June-December 2014 period.

Call options give the buyer the right to buy metal at a specific price on a specific date.

At the far extreme of the bull spectrum in December itself are 200 lots of call open interest on the $30,000 strike. And if that seems a bit far-fetched, what about the 200 lots of call open interest at the $40,000 strike in December 2015?

The options segment is where the full gamut of bullish expectation in this market is laid bare.

And options volumes have boomed in tandem with the underlying price rally.

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