Low inventories, supply disruptions, and strong demand from China and India are pushing the price of copper higher. Forecasts are now calling for US$3.50 per pound in 2008 and up to $US4 in 2009.

One report from UBS Securities says, “The risk of significant disruptions [in Chile and Africa] to forecast output are very high. Labour, maintenance, weather, grade, and increasingly, energy are combining to make copper mine supply one of the most precarious of any of the base metals.”

Look for this to continue impacting the shares of copper mining companies going forward. Teck-Cominco (TSX: TCK.B) and Anaconda Gold (TSX: ANX) both have large copper interests. Additionally, the first company has options to trade, the second company looks a lot like an option.

Teck just announced plans to move ahead with a giant copper mine in Panama along with partners Inmet Mining Corp. and Petaquilla Copper Corp. But costs are high and production could be a long way off.

Same with most of the companies in this business. The risk is trying to find new higher risk – higher cost deposits, to meet increasing demand. And they can profit handsomely, as long as the margins remain healthy. Which is to say, as long as demand remains strong.

In the end, it comes down to demand from the emerging economies. And the question, or risk, is whether these economies will experience a significant slowdown should the US slip into a recession.

For option traders, that spells opportunity. Mainly because the risks associated with these companies means higher volatility, which for stocks with options, means higher premiums.

TCK, for example, closed on Friday at $42.90. The April 44 calls were trading at $1.30. Buying TCK and writing the April 44 calls at $1.30 yields a return if exercised of 5.77% and a return if unchanged of 3.13%.

ANX on the other hand, does not have options. But if you buy into the story, this company is itself, a call option. The stock closed on Friday at $1.05 per share, so buying the stock is essentially buying a high risk call option based on the prospects for copper, and perhaps for global economic growth.

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Last week I offered an option strategy on Bear Stearns. Little did I know that the company JPMorgan Chase would increase their takeover offer by five fold on Monday. Rendering the strategy moot.

What was interesting however, was how the option market appeared to be pricing into the contracts just such an event. Which is to say, it was the reason why such a rare trade was actually available on the Friday before. Once again, demonstrating that options are probably one of the most efficient markets in the financial arena.