USO
Short Crude at $26 areaWith the corona virus situation going on, we know a few things for sure.
1. That is manufacturing has slow down globally = Low demand.
2. Russia Vs Opec on who can produce more oil = High Supply.
these two things are a disaster in progress for Crude and it will continue to be unless this corona situation get under control.
a lot of people are like, OMG CRUDE never been so low, and it won't stay this low.
WRONG! IT has gone this low before in 2016, and it has loss more than 70% during the last economic crisis in 2008.
Unless the coronavirus situation improves and all the lockdowns are lifted,I don't think oil has much chance of recovering yet.
There could also be a lot of shale oil stock getting absorbed and bankrupt this year just like in 2016.
If you guys see a weak shale oil company to short, feel free to comment.
Short Entry $26
Short target $20
Stoploss $30
TRADE IDEA: USO OCTOBER 16TH 2 X 2/MAY 15TH 5 CALL RATIO SPREADPictured here is a bullish assumption diagonalized call ratio spread with two times the number of long calls at the 90 delta strike in October as the number of calls in the front month with a 4.45 break even versus 4.47 spot. As of Friday close, it's priced at a 4.89 debit and had delta/theta metrics of 134.84/.45.
I generally visualize this setup in two, separate pieces -- one consisting of a long call diagonal and the other, a standalone long.
Assuming price breaks the short call running into expiry (and stays there), the long call diagonal consisting of one long call and the front month short will converge on max profit. This will be the difference between the width of the spread (3.00) and what it cost to put on one long call leg and the short call (2.17) or .83 ($83), at or near which that aspect should be stripped off.
The remaining call is then left to ride alone as synthetic stock to be taken off in profit, potentially targeting the $8-10/share, making a 5.25-7.25 profit on the standalone long conceivable.
In the event price doesn't clear the short call toward expiry, the short call aspect is rolled out to reduce cost basis further.
Supply shock / weak dollar/ technicalsThere’s a huge supply scare approaching our shores, but I think it’s priced in at this point. We got the news March 8th and the markets made there moves. Shutdowns were announced a week later and market dipped lower. We are now talking about reopening... Plus a weakening dollar. Oil industries reducing capex across board. This is all adding up to be a slow accumulation opportunity for big money.
THE WEEK AHEAD: A PREMIUM RICH MARKETOPTIONS LIQUID EARNINGS ANNOUNCEMENTS:
MU (77/112)
NKE (74/103)
EXCHANGE-TRADED FUNDS ORDERED BY IMPLIED VOLATILITY RANK:
EWZ (91/132)
USO (89/210)
XLU (84/76)
GDXJ (82/141)
XLE (77/109)
EWW (76/105)
SMH (73/105)
TLT (71/47)
XOP (63/154)
SLV (73/79)
GLD (63/37)
FXI (61/63)
GDX (57/106)
BROAD MARKET ORDERED BY IMPLIED VOLATILITY RANK:
IWM (76/71)
EEM (74/73)
SPY (73/66)
QQQ (73/60)
EFA (54/53)
VIX/VIX DERIVATIVES
VIX: 66.04
/VX APRIL: 62.00
/VX MAY: 56.95
/VX JUNE: 49.95
MUSINGS:
On Margin:
As you can see by the chart showing the top five or so exchange-traded funds having the highest implied volatility ranks, this is largely a closely correlated sell-off. Because of this, I'm somewhat hesitant to pile into a bunch of nondirectional stuff simultaneously, if at all. If we get relief from the selling, these very same instruments could whip back to the call side in closely correlated fashion, leaving me with a bunch of tested call side; whereas now I'm just put side tested (and how). Naturally, this means I have to put up with being far more directional than I would ordinarily be, but these things happen and being patient and mechanical with how you manage current positions will be more productive in the long-term than going bonkers here and bailing out of everything in panic.
Unfortunately, this likely means that I will be taking on far more shares of stock than I ordinarily like to hold on margin and then reducing cost basis over time via covered call. I'm always prepared for that, but being in stock on margin isn't buying power efficient, although you always have to plan somewhat for that possibility and go with the flow if taking on shares is really the best way to work yourself out of the trade.
In The IRA:
As pure luck would have it, leaving my SPY position monied throughout this nonsense (as well as erecting some additional call diagonals at market highs as delta cutters) has served me well. This wasn't particularly prescient or a stroke of genius; I was just doing what I felt I had to do to protect the largest element of my retirement portfolio at a point at which it made the most sense to do that and nothing else. Anyone else who did that and got lucky isn't a guru. No one saw this crap coming, and if they're saying they're a genius, well, I say you're free to call bullshit.
Is this an opportunity to pick up things on your shopping list? Maybe. I've taken this opportunity to ladder some out-of-the-money short puts out in a few things that I've had on that list for ages -- XLU, IYR, EFA, and HYG; all dividend generators which have been just far too pricey to deploy the frustratingly large bit of dry powder I've had sitting on the sidelines for ages as the market inexplicably ground up to more and more ridiculous valuations. Will I get in at the best possible prices? The jury's out. I will be getting in far lower than at the market highs we saw just a few weeks ago (assuming price stays below the rungs of my ladders) and won't let anyone talk me out of the proposition that lower is always better in your retirement account even if I don't hit the lows perfectly.
The basic strategy here, after all, isn't largely about share price; it's about assembling a portfolio that will pay out dividends regardless of growth and in which you can reduce cost basis over time via short call. It's three-legged: dividends, short call premium, and (if it happens) growth. If the grand arc of time has taught us anything, it's that growth may be an "average given" over the entire life of the market, but may not be over shorter time frames.
10 dollar swings at 20 year lows I'm seeing 10 dollar jumps in oil off this trendline- Clearly it's volatile and scary to trade right now. The media is scaring everyone shitless with no where to hide, but we have a bottom coming. I'm not sure we will touch the lower trendline, but if we do expect another 10 dollar pop, if not higher. Resistance is at 40 and I expect to see reached whenever equities catch a breath.
Crude Oil- Next major support levels a long way down! With US and Saudi Arabian cooperation, likely Crude oil will be taken to approx. USD$10.50/brl. The Saudi's can produced for US$7-8/brl. Higher political agenda, means it will be pedal to the metal for Saudi Arabia (13 million brl output maximum from April), to eliminate Iran once and for all.
WTI RepostLooks like I didn't have US futures on my WTI post. I think this is the right one, at least it's updating the price.
I usually don;t use this site for oil futures, so excuse my goof up.
In any case, it's bouncing back up..... but still down big.
The question is when do we buy? Will it hit $26 support from 2016?
THE WEEK AHEAD: ADBE, ORCL EARNINGS; GDX/GDXJ, USO/XOP/XLE, EWZEARNINGS:
ADBE (89/65) and ORCL (77/60) both announce earnings on Thursday after market close and have the metrics I look for in earnings-related volatility contraction plays (>70% rank; >50% 30-day implied).
Pictured here: a short strangle paying 11.65 at the mid price camped out around the 16 delta. Its defined risk counterpart: the 265/275/395/405 ten-wide iron condor pays 2.46. Off hours markets are showing wide, so look to price setups out during the regular session.
The delta neutral ORCL April 17th 40/55 short strangle pays 1.45.
EXCHANGE-TRADED FUNDS WITH EXPIRY IN WHICH THE AT-THE-MONEY SHORT STRADDLE PAYS >10% OF THE STOCK PRICE:
GDX (99/51), April
USO (97/66), April
GDXJ (96/58), April
XLE (97/75), April
EWZ (92/52), April
XOP (92/51), April
TLT (91/41), May
EWW (91/48), April
XLU (90/43), June
SMH (84/56), April
FXI (65/33), June
BROAD MARKET WITH EXPIRY IN WHICH THE AT-THE-MONEY SHORT STRADDLE PAYS >10% OF THE STOCK PRICE:
EFA (87/37), June
QQQ (83/43), April
IWM (82/46), May
SPY (78/41), May
EEM (70/37), June
FUTURES:
/CL (97/65)
/GC (84/25)
/SI (70/30)
/NG (65/48)
/ZS (30/19)
/ZC (21/22)
/ZW (13/27)
VIX/VIX DERIVATIVES:
VIX finished the week at 41.94, so it has been a rough ride for shorters who were in plays before this volatility expansion (points to self). The basic watch word is "patience"; volatility will abate at some point in time ... .
The CHK perspectiveI like Chesapeake energy for the longer term investment. Energy has been lagging compared to other sectors over the last few years and there is tremendous potential in good energy companies. CHK is historically cheap and could do very well if energy takes off. However, I suspect more pain ahead for oil with the potential for an enormous flush.. perhaps below 2016 levels.. Regardless of that, I think oil goes bonkers high over the next 6-7 years. I'm looking at holding some longer term USO call options (if we see a deep oil flush) as well as a few good oil/energy companies.. CHK is one of those in my opinion. CHK could disappear.. there's always risk in investing but I'm accumulating shares of CHK sub .48 but I wouldn't be surprised to see .20 either. We have some chart history that demonstrates these exact type of moves- From current levels, a $20/share run would equate to a 45x (4500%).. a move back to the 2008 ($69 per share) high would be 16000+% (160x). It can go to $70+ or it can go to 0.. This is a long term trade that has some risks so I'm only willing to put in what I'm willing to lose.