Trading Through Katrina

This column was originally published on RealMoney on Aug. 30 at 11:32 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.

"Hurricane Monday" gave traders their most volatile session since the London bombing in early July. Going into the morning, I started a diary to illustrate how I measured the risks and opportunities triggered by the event. This exercise will show you my thought processes when a quiet Monday gets turned upside down by bad news.

7:14 a.m. EDT: I'm at my trading screen. Katrina is down in size overnight. My weather graphics show the eye headed straight toward New Orleans. Crude oil opened Sunday near $71 and dropped off to $70 immediately, It's now hovering about 50 cents below this "round number" as traders gauge the storm's impact to the supply chain.

The reversal at $70 says this is still major resistance and energy traders need real news to push it over the big number. The big problem is that no one can assess rig, pipeline or refinery damage until at least Tuesday, and it will take days for real damage numbers to be tallied. That means movement in the energy pits this Monday will be traders jockeying for position based on pure speculation. ...