CHeck out Cash balance dramtic decline due to losses--you can sday all you want about how they run biz etc==its about the cash--and one more decline in crude and triggers will go off for collateral calls they DO NOT HAVE MONEY to cover.
No one is talking about this--YET
>>>>>Ibesh ... Projections for oil in 2009 are all over the place. In my opinion all of these "projections" are nothing more than "guesses" and are unreliable. The lowest I've seen so far is from the International Energy Agency (IEA) ... they lowered their 2009 forecast for oil prices from an average of $110/bbl. to $80>>>>
Wouldn't argue with any of that rig. Not sure any prediction from anyone, on anything from stock prices to oil, are anything you can take to the bank. You're probably right about the collars. This super cheap oil is really good for that unhedged portion of fuel, and the $10 average fare increase should be good for another billion $ in revenue---but I wouldn't want to give any of that $ back for oil falling below the collar floor. A recovering economy would solve a lot of problems at once. The oil speculation caused damage far beyond oil itself and we just have to ride this bad boy out.
Ibesh ... Projections for oil in 2009 are all over the place. In my opinion all of these "projections" are nothing more than "guesses" and are unreliable. The lowest I've seen so far is from the International Energy Agency (IEA) ... they lowered their 2009 forecast for oil prices from an average of $110/bbl. to $80/bbl. ... see link.
Southwest probably uses more "collars" now because it got a lot more expensive to hedge using the futures markets ... margin on futures contracts were substantially increased as a result of Wall Street's manipulation of oil prices earlier this year.
>>>>That's why I think the hedge additions were mostly calls, and no collars. I could be wrong of course, but that makes sense to me.>>>>>
I have to make a correction:
Fatty, it looks like I missed some important info in the 3Q08 SEC report. After reviewing the report,it seems that the hedges in 4Q08 and 2009 are primarily collars after all. 4Q08 Hedges are 85% @ $62/bar top and $53/bar bottom, with oil around $56 right now. Dec 08 delivery price is $68 as of 12 Nov, so those collars look OK. 2009 hedges are 75% @ $73/bar top and $61/bar bottom. Price projections for 2009 are $85 for the first half of 09 and $105 for the second half, so those look even better...at least according to projections.
>>>>So you see Ibesh it isnt just basically a contract to buy at a fixed price. You stand to lose if the trade goes against you. >>>>
That's good info. Nice to learn something new.
If you were offered an oil swap, basically a contract to buy at a fixed price...
You make it sound like a Call Ibesh. Its not. A counterparty is betting against you.
It seems only fitting the author is using LUV as his example. You guys didn't invent the JetA for HO swap but you perfectly timed your entry into the market. You easily found counterparties willing to take the other side of the trade trying to limit the cost of heating oil. Now the market is much more diverse and savvy. The NYMEX itself now runs some 20 odd different product swaps where you just pick your proxy and jump in. Which brings you to the Differential Swap.
I'd bet real money thats where your guys are right now. The authors link takes you to an explanation that hedges Dollar/Yen minus currency fluctuation. Imagine if you will hedging JetA/RBOB minus seasonal refinery run fluctuation. Neat? Youbetcha.
So you see Ibesh it isnt just basically a contract to buy at a fixed price. You stand to lose if the trade goes against you.
>>>>>Isn't that the thing, Ibesh? You don't know what the hedgers did, no one does...we'll all be reading about it when Southwest reports bad earnings or just their standard lukewarm, don't-rock-the-boat, we-gave-it-all-to-the-employees earnings. >>>>
Fatty, SWA has been run in a conservative way for decades. The management people are considered some of the best in the business, and SWA has been profitable for a very long time because of that. You don't know exactly what has been done with hedges, but you could make an educated guess based on SWAs business habits and available cash. As I see it, collars are out because they can be very risky, and primarily a way for cash poor companies to hedge. Look at LCC and the fix they're in this quarter because they tried to protect themselves as cheaply as possible. That leaves swaps and calls. If oil was dropping $55/barrel over 3 months, that means that it is steadily and significantly dropping virtually every day. If you were offered an oil swap,basically a contract to buy at a fixed price, while this was going on, what would you do? I might do it if the price seemed really good, but I'd be tempted to wait and see how low it might go too. Then there's calls. Paying a premium for the option to buy at a relatively good price would be the safest and most conservative way to go, but that takes money. Conservative, safest, but requiring free cash. That's why I think the hedge additions were mostly calls, and no collars. I could be wrong of course, but that makes sense to me. It boils down to what you think of the judgement and business abilities of management. If you don't trust that, you probably shouldn't be in this stock anyway. In this economy, I don't know that there are many better choices out there tho.
You must be stupid....the Quick ratio on the stock is almost a 1...it reduced its total liabilities by 3billion from Q2 to Q3.....Yah, keep shorting....You'll see where your gonna be in another month.