Crude options: if you can't take it....

Crude options: If you can't take it...

Like soldiers who joined the army but didn't expect to go into combat, some investors in the New York Mercantile Exchange's (NYMEX) volatile crude oil options pit are facing more than they bargained for.

The wild, rumor-fueled market swings

George Tzakis, a former options trader and now institutional broker at Checkmate Financial, says he was "traded through" six times and says brokers would not accept his limit orders two days in a row.

By shirking what he contends is their duty to make a market, Tzakis maintains the NYMEX pit brokers are "making windfall profits at the public's expense."

Wayne Penello, a broker for major commercial customers on Prudential-Bache's energy desk, calls this accusation "absurd" and says he has never had a limit order refused.

"I had to rely on my skills (to stay ahead)," he says. "You can't just jump in blind, because people are looking for the slightest edge."

Jim Paul, vice president at Dean Witter Reynolds Inc., says some customers begged him to get them into crude oil options.

"They just learned to ride a bicycle yesterday, and now they're telling me they want to drive my Ferrari at high speed with bald tires," he says.

Another prominent trader takes the position that, in the long term, the individual trader may be better off in the options market. Despite the costly initial investment, the crude oil options market is not as risky as trading futures outright, he points out.

However, he concedes "the options issue (during volatile times) is one that ought to be watched closely."

"Unless you have a death wish or an advance preview of the latest Cable News Network headlines," Paul laments, it might be wise to remember that oil is highly flammable.