hcgdavis 10:25 am on Wednesday, November 1, 2017

Oil trade, looks like the…

Oil trade, looks like the opec changes are working and oil is staying in a tighter range.

Futures margin currently $2700 per contract so would not sell anymore options than you can cover.

I am currently only selling 5 contracts as I need margin to cover GILD shares at end of week.

/CL strangle Feb 18 46/63 for 0.48 credit which is $2400 credit on 5 contracts. Initial margin 6000 but I have my cushion to cover the contracts if we have an extended move.

Goal is to take off in 4 weeks for 50% profit. Those levels are currently delta 8 and they decay to delta 4 in 4-5 weeks.

Just filled at 0.48

fuzzballl 10:28 am on Wednesday, November 1, 2017

FWIW…from a guy my brother subscribes to. Have no idea on his accuracy but something to read.

=======================================================

Oil

Crude oil is at a massive juncture here. The 55 to 56.5 gap down on July 2nd in 2015 was a level that oil still hasn’t been able to surpass. We tried it at the start of the year, but failed. Now we are at it again. If we cross it, 55 becomes long term support and the oil bear market is most surely over. Not sure what will take oil down here with world economy strengthening and Russia and the Arab states willing to manage production to where they see the prices higher. US domestic producers can also start to play a game where they switch back to harvesting more expensive oil fields and keeping the cheaper fields for bad days. I think everybody wants to see oil higher. The industry likes to see it, the FED likes to see it spike the inflation numbers, governments dependent on oil like to see it to balance their budgets. The only people who don’t want oil price increase is US consumers or European consumers because it is eating into their discretionary spending. May be finally oil is going to get to that 60-70 range everybody has been predicting for so long. Now looks like the time for it. XLE (energy ETF) has been in a nice rally over the past 2 months, I think that move is predicting a breakout.
- hcgdavis 10:43 am on Wednesday, November 1, 2017
  
  There is a huge long term elliott wave level at 53.14 if you subscribe to that. My tool tends to be fairly accurate on the futures.
  
  Of course since I put the trade on now it will whip all over the place 🙂
  
  However, given my current margin situation it was the best trade I could find without tapping into buying power too much.
  
  I will be assigned GILD at 79 this week, 77.5 next week and 77 the week after that. (900 shares total). Cost basis all a dollar lower and I can make up the deficit in 2 weeks on covered calls as long as it does not drop anymore. If it does will go synthetic short on the stock and buy 1-2 extra put for every 300 shares and ride it down. I should just short a few shares of GILD then it will rally……..that’s why i don’t trade directionally. Kudos to those that can but I never have success with my directional trades.
  
  However, take a look at the OTM options on /CL. The decay is fierce, 50-60% in 4-5 weeks from 77 DTE to 43 DTE. The puts decay from .28-30 to .11-12 and the calls from .18-20 to .7-8. If oil stays between 50-55 the trade will show a profit in 3 days.
  
  If you look through my old posts you will see some of these, last round closed at a $300 loss but longer term tends to work well. That was when oil was dropping into the 30s in the spring and I could not roll fast enough to keep up with the drop. Ended up just closing for a minimal loss. Had I stuck with it would have eventually been profitable.
  
  We break above 56 I will buy some /cl futures then have a covered call to upside.
hcgdavis 11:45 am on Wednesday, November 1, 2017

tasty trade video on mechanics of trading oil/cl

https://www.youtube.com/watch?v=vMt6P7LrV7I
- fuzzballl 12:04 pm on Wednesday, November 1, 2017
  
  Interesting video…that was May 2014. Starting June 2014 /CL took about a 70 percent haircut almost straight down. Wonder if he survived?
  
  EDIT….found this. Looks like he survived with a 25 percent drawdown. Better than I expected. Sounds like his /ZB short saved his ass.
  
  https://www.tastytrade.com/tt/shows/rising-stars/episodes/rising-star-update-12-31-2015
  
  3 min mark is very important IMHO…
  - hcgdavis 12:15 pm on Wednesday, November 1, 2017
    
    cool you found that. I took a haircut on oil then as well but keep going back to the well. Good premiums, low margin. My only complaint is can only trade monthly, wish they would release weeklies.
    - fuzzballl 12:22 pm on Wednesday, November 1, 2017
      
      That was kinda my deal breaker. Dabbled a little but really wanted weeklies.
      - hcgdavis 1:12 pm on Wednesday, November 1, 2017
        
        Agree but anything that can make a better than 25% return in a year is ok in my book, even if I can only trade it monthly.
        
        Use it as a little side position, not the core of my trading but the liquidity is great.

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