Crude oil continues to rise to new all-time highs, but it’s prudent to be prepared for a correction when a market has moved this far, this fast. It could even come mid-week once the market absorbs the latest supply data as well the result of the two-day Fed policy meeting. I am currently recommending a bearish crude oil options strategy.

NYMEX June crude oil futures have risen to a new record above $119 a barrel on Monday, April 28, 2008. Geopolitical events have taken center stage, as a North Sea pipeline was shuttered and an Exxon workers’ strike in Nigeria entered its fifth day. The Nigerian militant group, the Movement for the Emancipation of the Niger Delta, also said it will continue attacking the nation’s oil and gas pipelines as part of what it calls ”Operation Cyclone.”

Crude oil could continue to rally as high as $121.50 on bullish momentum. However, I feel that could mark a near-term top as other fundamental factors come into play. On Wednesday, May gasoline and heating oil futures expire, which could cause some volatility. In addition on Wednesday, weekly inventory numbers are released from the Energy Department. Last week, we saw a build in crude oil stocks, but the market failed to react because we saw drawdowns in gasoline and heating oil. Watch for a potential change in the market’s behavior this time around as inventories should improve. It appears that increased shipments are hitting our shores, as West Africa to Atlantic coastal tanker rates have doubled in the past week. Mexico had also been grappling with refinery problems and port closures due to inclement weather, and should be back on line.

The Federal Reserve also announces its decision on interest rates Wednesday afternoon. If the Fed hints its easing cycle has ended, we could see a bump in the U.S. dollar and declines in commodities. Fund participants in the markets seem to be shifting assets out of some commodities and back into equities, which have been performing better. That could accelerate after the Fed meeting.

These factors all up the odds of a correction, and I currently am recommending the August 110/100 crude oil put spread to take advantage of that. You would buy the 110 put and sell the 100 put against it. Your defined maximum risk would be about $2,000 plus commissions, and your maximum profit potential would be about $8,000 less your commissions.

Please feel free to call me to discuss other strategies suitable for your particular needs and risk tolerance.

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Phillip Streible is a Senior Market Strategist with Lind Plus. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com.

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