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We bought back our 86 crude puts yesterday (as part of a 97/86 strangle using July options) and took today's pullback in crude as an opportunity to offset the calls and roll into a balanced strangle with better positioned strikes. We recommended that for every 97 short call coming into the day, traders buy it back and sell 2 101 calls and 2 89.50 puts. This created a credit of about 80 cents per roll out. Hopefully, I can get back to sleeping at night
In case you are wondering why we didn't opt for strikes further out for an even money roll, we feel like crude options tend to stop eroding once they reach about 30 cents in value....at least until you get close to expiration. We are trying to avoid being handcuffed into the trade until expiration.
*Sorry for the ramble, it has been a crazy day.
**There is unlimited risk of loss in selling options, it is not suitable for everyone!
*There is substantial risk of loss in trading futures and options.
If you have any questions about the products or services provided by DeCarleyTrading, please send me a Private Message or use the futures.io " Ask Me Anything" thread.
We rarely recommend buying options, but we did in coffee back in April (the July 155s for about 1.20). Luckily they finally paid off today (they are trading near 3.00). As you know, long options don't always work out that well, lol. We recommended to lock in the profit today, you could be right about this rally.
*There is substantial risk of loss in trading futures and options.
If you have any questions about the products or services provided by DeCarleyTrading, please send me a Private Message or use the futures.io " Ask Me Anything" thread.
From a technical perspective I'm anticipating that the 1.5 area will provide short-term resistance. The major resistance area to be watching is the 1.57 to 1.6 area that is major weekly resistance.
The specs have been short KC futures for months. Short 26k on 3/19. But not enough of them took profit the next 6 weeks while KC stayed in a tight $10 range. As of 4/30 they were still 19k net short.
So now the specs are scared of giving back their profit so they are running for the exits. OI for all KC futures are down 6.4k the last 5 days when futures increased 9.45 (not including today). Problem is that there is a very good harvest coming in. The weather is dry and good for harvest. World supplies are strong. Demand is barely higher. This will put a lid on KC. Probably 150 max.
So in hindsight we sold early. But the last 3 years KC has been down in May. The specs were 13k net short last year and prices dropped in May.
Was able to cover my July NG at 0.001 this morning. Trade was as follows:
4/5/13 sold NGM35C for 0.005.
4/12/13 bought back NGM35C for 0.013. -$90 per contract. At this point I am 2/3 of my way through remaining buffer and from a technical standpoint I don't see things turning around soon enough to ride it out.
4/12/13 Sold 4X this amount in NGN36C for 0.006. $220 net gain per contract if held to expiry.
4/15/13 Worst drawdown point when NGN36C traded as high as 0.013. Remaining buffer was still 3/4 full.
4/16/13 Covered 1/4 at 0.004 -$40
4/25/13 Covered 1/4 at 0.003 -$30
5/10/13 Covered 1/2 at 0.001 -$20
So total from this rollover trade was a net of $40 After the 15th my buffer was $2162 so an ROI of about 1.8%. Not exactly anything to brag about but I think I managed the trade o.k. The other alternative was to take the full hit on the NGM35C since this trade would have exceeded the buffer margin. I would have obviously made more money holding the full amount on the NGM36C until today; however, laying off risk was important.
The fundamentals for oil are bearish. Super high US inventories. Rising US production. Decreasing US demand. OPEC exporting more oil. Slow growth in demand worldwide. I have been selling calls.