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Option combos on crude

Discussion in 'Options' started by marat, Aug 29, 2014.

  1. marat

    marat Well-Known Member

    I have not seen crude oil (/CL) discussed yet. So I thought I will show the trade that I am ready to take off. I don't what it should be called, batman or cat;)
    upload_2014-8-28_21-44-22.png
     
  2. tom

    tom Administrator Staff Member

    Hi Marat. I've seen a similar trade to this called a bat trade. I like it. :cool:
     
  3. Interesting risk graph, but not instructive unless you give the whole trade history.
    When was the trade entered?
    Was it entered as you have shown or has there been adjustments since you first entered?
    Etc. . . . Etc.

    John
     
  4. marat

    marat Well-Known Member

    John,
    I think you can at least appreciate I am posting actual payoff graph for a real trade on /CL. Other then Tom and Jim I did not see other people doing it on this forum.
    I am certainly not ready to post my trade history on the public forum, but I am open to reasonable discussion and was hoping to see other people showing their results on CL(even if final)
    The trade was put on 08/08/14. It started as a short deep OTM strangle hedged near ATM longs/spreads. There were few adjustments along the way, and as you can see the hedge has been transformed into double backratio.

    Marat
     
    Last edited: Sep 1, 2014
    Trader G likes this.
  5. marat

    marat Well-Known Member

    Here is the trade a a few days after I started it upload_2014-8-31_20-6-28.png
     
  6. Trader G

    Trader G Well-Known Member

    I do want to thank you for posting a trade. Interesting to see other people's ideas especially on different underlyings. With the lack of movement I haven't really felt comfortable putting on some of my trades right now, but I might put on a small RUT fly if we do get some activity. Unfortunately, it is a lot like Tom's fly so not sure what benefit it will be. I am also working on some longer term and directional plays and later in the year if I start going live with them I will post too. Right now I am between option modeling software (let one expire and looking at Optionvue). I am not a backtester so outside of checking my TOS deltas I am not sure what I would use it for.
     
  7. marat

    marat Well-Known Member

    Thanks! I started my trading with RUT but parted away from it into commodities. For the latter Optionvue is pretty much it, unless you are happy with TOS. I had Optionnet for a while, but with no coverage for futures I did not renew it.
     
  8. tom

    tom Administrator Staff Member

    Thanks for posting the initial trade Marat! I was curious how your fills are with CL futures options? Is there enough open interest and volume? Do you ever trade the underlying futures contracts?
     
  9. marat

    marat Well-Known Member

    Thanks Tom! CL is very liquid, high open interest, and fills are very good. Bid/ask spreads are minimal (1 tick wide a lot of times). The unique feature about CL that even for deep OTM strikes (< 2 delta) you can get nice premiums (this is where I usually go for my shorts). BUT there is a reason for that, and CL could sometimes be an "explosive" product :mad:, so one has to be careful. One thing to remember is that contract multiplier for CL is 1000, not a typical 100. Currently CL is in the period of low volatility, so we have the same issues as with equity indices.
    I don't trade the underlying but there are mini CL futures, which could be interesting for hedging purposes.
    I first learned about CL, when Jay Hanson showed some of his trades during one of the webinars. Perhaps you can ask him to do a presentation one of these days.
     
    Last edited: Sep 3, 2014
  10. tom

    tom Administrator Staff Member

    Sounds like I need to take a look at the CL futures!
     
  11. marat

    marat Well-Known Member

    Great. Look forward to your ideas. Then there are grains (wheat, corn, soybeans) and meats (lean hogs and live cattle), but I have not made much progress on those yet.
     
  12. Trader G

    Trader G Well-Known Member

    So is the skew on CL like bonds to the upside or does it have a more traditional commodity skew with the smile curving up on both calls and puts? The reason I ask is that in looking at your first picture, I wasn't sure if only the upside would be hurt by a sharp move up and pop in vol or if both sides could impacted.
     
  13. marat

    marat Well-Known Member

    It is a commodity skew (see opvue pic below). From what I can see the vol can pop on both up and down moves. The positions I showed will diminish gamma risk, but you would still get hurt on the vol pop. Almost inevitable if you sell premium, unless you go diagonal (but then you have to deal with two separate underlying/contracts). I am hardly an expert on crude though, really just exploring it at this point.

    upload_2014-9-3_13-30-17.png
     
  14. Ticks

    Ticks Member

    I am new to this forum. Has this thread been closed or is in just inactive due to a lack of interest? I am an active CL trader for both futures and options so I am interested in sharing thoughts and strategies for trading Oil Thanks for any new posts that are current...
     
  15. tom

    tom Administrator Staff Member

    Welcome Ticks!

    It's not closed so you've re-activated it. What kind of CL trades do you put on typically?
     
  16. marat

    marat Well-Known Member

    I kind of stopped posting because there was no much interest, but I would be interested in continuing this thread. I have not put much trades on crude recently because of such dramatic move to the downside. The only thing I have now in crude is a small bearish broken wing fly.
     
  17. Ticks

    Ticks Member

    My approach to trading CL is that I take a non-directional stance when first entering the trade. How ? and Why ?
    The How is: I trade the CL future contract Long which has a Delta of 1000. At the same time I sell 2 ATM calls for a Delta of -1000 ( Minus or short deltas of 1000). So I am plus 1000 on the future and short 1000 deltas on the Calls sold. Why? By entering this way I have temporarily removed market direction while still collecting massive premiums.
    Once in the trade I manage the trade by taking off profits usually when the Delta moves from the starting level of Zero Deltas to +/- 300 deltas. If the delta changed by that amount I have a profit either on the calls or the future. To "take profits" I buy back the calls at a profit and at the same time I sell calls closer to the money and thereby collect additional premium and this will "adjust the Delta" back to close to zero. I then wait for the market to move to increase the delta or decrease delta by approximately 300 deltas.
    Please note that I have positive theta at all times and of course must manage my Gamma and Vega risks.
    This is a short synopsis of the trading strategy that I am employing. I have been doing this for about a 16 months and it has been profitable.
     
  18. marat

    marat Well-Known Member

    So you are essentially trading short straddle, since long futures and short call is synthetically equivalent to short put. How did the trade behave during the recent drop in crude?
     
  19. Ticks

    Ticks Member

    Yes. I did not use the simpler explanation of a Synthetic Straddle as I did not want to confuse those who maybe reading this thread, and may not be "up to speed" on option jargon. I welcome "drops in price" or for that matter rises in underlying prices as that will allow me to adjust at a profit. Now it is true that I would lose money on the long side (the future) but if I manage properly then I still have a net profit. Hope this is clear. Maybe you are correct Marat, few are participating and perhaps because of a lack of interest the thread might be at an end. I think many traders "fear" oil due to the high point value of $1,000 and a tick of $10 per penny. Also it has higher vol then most may like. For me, and perhaps you Marat, it is the perfect trading vehicle.
     
  20. marat

    marat Well-Known Member

    Two is a crowd right.:) Plus Tom is interested in futures and Adrian as well. I will send you my email and skype handle and we can chat offline as well (if you are interested). It would be good to exchange ideas. I will try to run through your straddle during the last drop. I always thought of straddles on crude as incredibly risky propositions, but you are apparently managing it ok
     

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