/CLF6 short strangle
I just opened a short strangle position on the January 2016 contract of WTI crude oil, which expires on December 22 of this year still.
The details of this trade are as follows:
| Date | Inst. | Mark. | # | L/S | Strike | C/P | Price | Δ | Days | Max profit | Comm. | Close | P/L | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | 10/21/2015 | /CLF6 (jan) |
45.43 | 2 | short | 37 | P | 0.39 | 0.07 | 56 | $1380 | $7.42 | – | – |
| 2 | short | 57 | C | 0.30 | 0.09 | $7.42 | ||||||||
| 2 | 11/17/2015 | /CLF6 (jan) |
41.99 | 1 | long | 37 | P | -0.52 | 0.15 | 29 | $860 | $3.71 | – | $180 |
| 1 | long | 57 | C | 0.02 | $3.71 | |||||||||
| 3 | 12/03/2015 | /CLF6 (jan) |
40.14 | 1 | long | 37 | P | -0.56 | 0.21 | 15 | – | $3.71 | – | $130 |
| 1 | long | 57 | C | 0.02 | $3.71 |
Trade reasoning
I closed the CLz5 trade yesterday, since the trade made 75% of profits in about 40% of it’s time, there was an OPEC meeting today in Vienna, and I also wanted to see the inventory numbers.
I decided to open this trade since things remain pretty much unchanged:
- US production is the same as last week, declining very slowly
- OPEC is still pumping strong
What is interesting, is that this mornings EIA numbers didn’t cause a sell-off, despite them being worse than expected. This makes me think oil really has bottomed out, and this is why I put a positive skew in this trade. At the moment of opening the trade, I had a 26% profit zone to the upside, and a 19% zone to the downside.
I narrowed my strikes slightly since my last short strangle in oil, since OVX (the oil volatility index) has been decreasing, and CL is range bound. OVX has been making lower highs and lower lows, so it’s definitely in a down trend. It spiked a bit today, partly due to the near 3% drop we opened with this morning, and I think this is a good opportunity to enter the trade. I’m counting on implied volatility to fall further, which will mean that this trade will become profitable quickly.
The expiration of the options is a bit far, and we have an OPEC meeting coming up on December 4, so we’ll see where things go till then. Hopefully, I will be able to close out the trade with a nice profit by then.
Now it’s time to sit tight and let theta go to work.
Update #1 – 11/17/2015: Closed 1 contract at $180 profit
Today I decided to take some risk off the table.
I still have a large downward buffer, but CL has been flirting with $40, it might break it soon. Oil prices have been in a down trend with bearish fundamentals, specifically, the fact that world oil reserves are at records, and demand isn’t really there. China numbers are worse, the Paris catastrophe isn’t helping demand either.
On the supply side, the Saudis aren’t letting up, and US supply isn’t falling. In fact, inventory injections have become the norm.
I would have still had the option to adjust it then, but learning from my loss in NGZ5, I wanted to make this position smaller, so I wouldn’t be as biased when making decisions.
If my put side goes below -.30, I will manage the trade by moving the put side down, and selling a call closer to the market price. I won’t be closing my original call option. But this is forward thinking, let’s see where things go from here.
OVX has increased to 46, so if CL tanks, I will sell more far OTM puts beside moving my trade’s put side down.
Update #2 – 12/03/2015: Closed remaining contract at $130 profit
I had to close my CLF6 trade this morning due to a medical emergency in my family (nothing serious). I was planning on doing so at a better price before the OPEC meeting tomorrow, but since CL was falling sharply, I didn’t want to be sitting in the hospital looking at my phone, not concentrating where I should be. CL made an aggressive 5% decline yesterday, and even though it wasn’t declining today, my put leg had a delta of -.22, and another aggressive move down would have made the delta cross my .30 level, which is where I adjust the trade.
I’ll open a CLG6 trade on Monday though, as originally planned.