Two serious down days for the US stock market.

And finally, despite oil trading at US$134 a barrel, The Canadian market followed the US south. The reason: inflation. And while energy and materials are important to the Canadian economy, they are not the entire Canadian economy.

At some point, oil prices will make a difference. It continues to amaze me that so far at least, consumers have not changed their habits. Look no further than in the mirror. In my case, I have looked at hybrids… but I have not bought one. Same with most consumers. They grumble at the gas pump, but they pay and move on.

Having said that, subtle changes are occurring. Talk to anyone in the tourist business, and they will tell you that the number of visitors to the great white north is the lowest since records were kept. All the way back to the 1970s!

Obviously you can blame the high Canadian dollar. But I think this may be the tip of subtle changes in consumer spending habits. Unlike past slowdowns, this has less to do with a fear of losing ones job, and everything to do with the dwindling level of disposable income.

In light of that, you will spend money on the little things; basic essentials, putting gas in your car and going out for dinner. But you less likely to put in a swimming pool, or take that road trip to Canada.

Of course this is just one of the elements that is disconcerting. Weakening demand for North American automobiles is having a devastating affect on Ontario. It re-enforces the linkage between Canada and the US, and explains why Canadian stocks are following their US cousins.

The solution to this – with apologies to our western neighbours - is lower oil prices. If not, there will come a point where consumer attitudes will change abruptly, and global economic growth will cease to exist. Demand for oil will wane as a result.

The question; is what price does oil cross that demarcation line? US $150 per barrel… US $200 per barrel?

In the interim, option traders have an opportunity to play the game from both sides. Options on oil stocks are trading at implied volatilities that are twice the market average. Opening the door to some interesting covered call writes.

With the covered call write you are participating in what is either a speculative frenzy, or an excess demand driven cycle - you decide. If the former, then the covered call write hedges your position. If the latter, you create a portfolio with excellent income potential and some further, albeit limited, upside.

Buying Suncor (symbol SU, closing price $70.98) and writing the SU July 72 calls at $4.40, or Canadian Natural Resources (CNQ, $103.93) and writing the July 105 calls at $6.20, or Encana (ECA, $93.61) and writing the July 94 calls at $4.65.