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Contangodrift

Trading Strategies for Capitalizing on the Volatility of OilAs financial market traders, we are always on the lookout for trading strategies that can help us capitalize on market trends and conditions. One such strategy is to take advantage of the volatility of oil prices. Oil is a valuable commodity that is subject to significant price fluctuations. There are several reasons why oil is volatile, including limited supply, high demand, geopolitical instability, and speculation. These factors can cause the price of oil to fluctuate rapidly and often unpredictably, which can create opportunities for traders who are able to anticipate and capitalize on changes in the price of oil. One way to take advantage of the volatility of oil prices is to use a trading strategy known as "contango trading." Contango trading involves buying oil futures contracts and holding them until they mature. When the price of oil is in contango (i.e. when the futures price is higher than the spot price), traders can profit by buying the futures contracts and holding them until they mature. This allows traders to take advantage of the difference between the spot price and the futures price, and can provide an attractive return on investment if the price of oil rises as expected. Another way to take advantage of the volatility of oil prices is to use a trading strategy known as "spread trading." Spread trading involves buying and selling oil futures contracts with different expiration dates. When the price of oil is volatile, the prices of different futures contracts can diverge, creating opportunities for traders to profit by buying and selling these contracts. For example, if a trader expects the price of oil to rise in the short term but fall in the long term, they may choose to buy a short-term futures contract and sell a long-term contract. If their prediction is correct, they could profit from the difference in the prices of the two contracts. Overall, the volatility of oil prices can create opportunities for traders who are able to anticipate and capitalize on changes in the price of oil. By using strategies such as contango trading and spread trading, traders can potentially profit from the volatility of oil prices and generate attractive returns on their investments. In Depth Contango Trading - This strategy is based on the expectation that the price of oil will rise over time, and it is used by traders who want to capitalize on this expected price increase. When the price of oil is in contango, it means that the futures price is higher than the spot price. For example, if the current spot price of oil is $50 per barrel, and the futures price for oil to be delivered in six months is $55 per barrel, then the price of oil is in contango. In this situation, traders who use contango trading would buy the futures contracts and hold them until they mature, hoping to profit from the expected increase in the price of oil. The profit from contango trading is the difference between the spot price and the futures price. In the example above, a trader who buys the futures contract at $55 per barrel and holds it until it matures would make a profit of $5 per barrel if the price of oil remains at $50 per barrel. If the price of oil increases above $55 per barrel, then the trader's profit would be even greater. Contango trading is a risky strategy, as it is based on the expectation that the price of oil will rise over time. If the price of oil does not rise as expected, or if it falls, then traders who use contango trading could suffer significant losses. Additionally, the volatility of oil prices means that it can be difficult to predict the direction of price changes, which can also create risks for traders who use this strategy.
FX:USOILEducation
by JoelWarby
WHAT I'M LOOKING AT FOR EARLY 2017: VIX/VIX DERIVATIVE PLAYSWith Dough transitioning over to TastyWorks (it's basically Dough on steroids), I'm looking to wind up positions I've got on here over the next several weeks so that I can transition over to TastyWorks, which will not interface with TDA accounts. While I can naturally use ThinkOrSwim (ToS), it just doesn't have the features of Dough that I've come to know and love. Call it laziness, lack of "platform fluency," or a geezerly unwillingness to change, I'm not willing to "do without my Dough." My original intention was to wind up everything in time for the TastyWorks roll out (Jan 3rd), but I figured I would just "carry on" until TW was firmly up and running, the mad rush at the TW doors had ebbed, and the inevitable glitches or kinks had been worked out. It is, after all "a new broker," and shit can happen ... . Generally, I prefer that shit happen to someone else. Okay, call me "lazy" and selfish. In any event, being somewhat hobbled by the unavailability of Dough IVR/IV screeners here (I have other tools to screen for those, but they're extra work), my focus is going to pretty much be solely on short volatility product plays here over the short run, with the emphasis being on VIX "Term Structure" plays and "Contango Drift" plays in VXX and SVXY (UVXY is getting awfully close to reverse split territory, and I don't want to be in the middle of an options play when that happens; they're "messy"). Unfortunately, these are some of the most boring plays out there. For "Contango Drift" plays, you're basically sitting on your hands a lot, waiting for a pop in VIX, preferably to >20, and you can be waiting literally weeks for those to occur. With "Term Structure" trades, you put them on and wait sweatily for the VIX futures price to converge on spot, ideally below your short call strike before your options expire. If they don't, you look at rolling your spreads out for duration, which means (you guessed it), additional waiting for volatility to "come in." I'll look at posting a "Contango Drift" example here, since I've already got some "Term Structure" examples out there to look at ... .
CBOE:VXX
by NaughtyPines
1
EXAMPLE: VXX 30 DTE X/X+3 ATM SHORT CALL VERT (CONTANGO DRIFT)As previously noted in other posts, the short volatility product plays I like most are "Term Structure" plays in VIX and "Contango Drift" plays in VIX derivatives, with the preference being toward the latter play, since you're getting in on a pop in VIX and then taking advantage of "Contango Drift" in the derivatives to the downside (in UVXY, VXX; SVXY is an inverse, so you're looking to take advantage of "Inverse Contango Drift" to the upside). Here's what I'm looking to get into a "Contango Drift" play: 1. A VIX pop to 20 or greater. For various reasons which I've elucidated before, I use the VIX price as a guide to enter these plays and not the price of the derivative itself. That being said, some traders use a 2 SD Bollinger Band as a rough guide as to when they would want to consider an entry. I really can't poo-pah that, since the last two BB touches (indicated by green arrows) would have been winners. 2. An ATM Setup That Pays at Least 1/3rd the Width of the Spread. I generally go with an ATM credit spread for which I get at least 1/3rd the width of the spread in credit (i.e., for a three-wide, I look to get 1.00 ($100) in credit per contract). This may require some "putzing" with the spread, moving it up or down in relation to current price. 3. Roll Out for Credit/Duration If Price Has Not Broken Short Call Strike by Expiry. No one likes to roll out for duration, since it usually means that the setup is "broken" and you'll be booking a realized loss in the short term if you do that. However, with contangoized setups, time/duration is on your side; the longer you hold the setup, the more likely it is that contango will work its fairly inevitable magic on it. 4. Go Small, Since "Shit Happens." Unfortunately, markets don't always "behave" the way we'd like them to. VIX can "elevate" for periods of time that are longer than we'd all like and send the derivatives into temporary periods of backwardation that aren't favorable to these setups; they'll be underwater and you'll be holding them longer than you'd like. Going small allows you to ride out periods of backwardation, as well as keep buying power free for getting into similar setups "higher up the ladder" if that sort of thing happens. If we do get a VIX pop to greater than 20, I'll post an actual trade setup. In the mean time, hand sitting ... .
CBOE:VXX
by NaughtyPines