LONG UGA @ $28.50 for Gasoline Futures bounce from $1.64Gasoline Futures (RBOB Gasoline Futures) likely counter trend bounce here off 200weekSMA support at $1.66 to reclaim long-term moving average support of 50monthSMA at $1.70, then rally to test 100weekSMA resistance at $1.80.
Technical Analysis:
- Gasoline Futures (RBOB Gasoline Futures) now testing long-term support of 200weekSMA at $1.66.
- $1.66 also strong price support from Feb 2018 for potential double bottom pattern
- Daily & Weekly RSI extremely oversold
- Daily MACD record lows
- 50monthSMA long-term support sitting at $1.70 to continue uptrend from 2016 lows
- Potential bottom hammer candle on hourly chart today at $1.66
Fundamental Analysis:
Over recent weeks, we have seen an almost perfect bearish storm in the Crude Oil market that sent the price of futures from a high of $76 to low of $61, a decline of about 19% in less than one month. Rising production, increasing inventories, a strong dollar, concerns over trade, and the realization that the sanctions on Iran include some exceptions, all led the price of the energy commodity lower in a dramatic corrective move. These factors have had a greater impact on its bi-product Gasoline, which is also undergoing a seasonal bearish period during the winter months. However, we feel this move has been overextended to the downside as there are still 3 fundamental reasons why oil is close to low and could spark a counter trend rally in Gasoline.
- Turmoil in the Middle East could result in a decrease in production and rapid price increase
- OPEC expected to cut production at their bi-annual meeting Dec. 6th
- Pullback of USD from highs due to US election results could relieve some of the bearish weight on commodity prices
- Demand for the energy commodity remains strong with increasing population and rising heating oil cracks
USO
THE WEEK AHEAD: NVDA, AMAT EARNINGS; MJ, USO, SLV, EEMAs of Friday close, NVDA and AMAT appear to have the volatility metrics I'm looking for in earnings-related volatility contraction play (>70 rank/>50 implied).
NVDA (70/67) announces on Thursday after market close. The iron condor pictured here pays 1.73 credit with break evens wide of the expected move.
AMAT (68/48) announces on Thursday after market close, with the Dec 21st 31/37 short strangle paying 1.64 (50% take profit of .82) and the 34 short straddle paying 3.89 (25% take profit of .97).
On the exchange-traded front: USO (100/35), SLV (99/22), EEM (85/26), XOP (76/38), and OIH (75/36) round out the top symbols by rank, with USO, XOP, and OIH being no surprise given the beating oil has take over the past several weeks. Although I am mostly selling premium in XOP here, I could see also taking a bullish directional shot in OIH, which has broken through long-term horizontal support; XOP and XLE have yet to close in on the bottom of their long-term ranges. Alternatively, I could see doing a similar, bullish assumption play in one of the higher volatility petro underlyings that have earnings in the rear view mirror: OXY (75/30), COP (74/33), or BP (70/36), for example.
ASHR (74/33) is worth a passing mention here, but if I'm going to play China, it's going to be via the more liquid FXI (65/28).
MJ (--/64)* is also worth an honorable mention, with the more recognizable cannabis underlyings -- CRON, CGC, and TLRY -- all announcing earnings this week. The currently unfortunate thing about MJ is that it's not getting decent volume yet, so options liquidity isn't the best for those who'd rather not be on the single name roller coaster.
As far as the majors are concerned, some volatility came out of the broad market post-mid-term elections: SPY 30-day's now at 15.3%; QQQ at 24.6%; and IWM at 22.8%, so if I'm going to add broad market short premium here, it's going to be in the Q's and/or RUT/IWM.
Lastly: UNG. Last week marked a kind of WTF, weather forecast-related spike in natty, with UNG printing a new 52-week high. I was previously looking at 27.5 as an area of interest for short with 31-ish being the next stop, but thought November was too early in the natural gas seasonality cycle to be putting on a short play (usually, a downward put diagonal (See Post Below)* with the back month in April or later). Now that it's whipped through 31 in three seconds flat, I'm going to be patient here and see if it grinds higher throughout December, even though forecasts are generally calling for a "meh" winter temperature-wise.
* -- It doesn't currently have a 52-week rank, since it hasn't been around that long.
** -- Naturally, that setup's no longer good. I'll post a revised setup here shortly.
OIL - Selling premium into high IVR-Short Strangle
-16 Delta
-35 DTE
-100% IVR
-$1000.00 Credit
This is a good high IVR premium selling opportunity. Due to oils sharp drop in price in a relatively short amount of time has caused implied volatlity to skyrocket. My straddle has some positive delta bias because I think a relief rally is due so if we get a pop in oil prices it gives my upside a little more breathing room. Although I don't believe a relief rally will amount to much other than a short rally before carving out new lows.
Short XLE (After next week's potential bounce)XLE has broken triangle formation. Expect it to retest the bottom trendline before further down. Short it if the retest fails to go above TL.
My OB/OS indicator has reached to the previous low level. Trade the bounce intraday or 2-3 days short term. Then resume the downside, expect it to break the previous low in my indicator.
LT TP: 41
USO! when oil starts the bear move it's one of the easiest tradeI've been doing well buying puts once the corrections are developing. Usually about 3-4 weeks out to allow the correction to develop and so I dont get slammed by theta decay. Now eventually if we're in an impulse to go down, we will need to see a bigger correction to develop. Will we get a few more pushes down before that happens, or will it start right now? Either way I'm looking to purchase another put sometime within the next week (as long as we dont breakout past the downtrend line, this will signal a deeper correction/ reversal depending on how price behaves after that)
Longterm view in the comments. (not confirmed yet, just looking that way)US
thanks for looking, and trade responsibly!
WTI $ could be in for more short-term suffering b4 NEW HIGHS!Large bearish Descending Triangle in WTI. This means we could easily test bottom again, which ultimately could mean another gut punch for Alberta. Corb Lund and the 'Hurtin Albertans' indeed!
If you read up on the descending triangle formation, it tells us it is a bearish pattern and most often a continuation pattern, however, it also can represent a reversal pattern, which clearly it does in the case of WTI, since it began from the peak price point in 2008. I believe this descending triangle will eventually break to the upside once it resolves and will eventually lead to crude oil prices at new all time highs. The formation requires two tags of the base line and two on top which have completed this month. Essentially we are not required to move back to the mid 30's range again for this to resolve, but i'd be cautious going long crude in any big (long-term) way until either we break that upper line or see a pull back to the 50 month MA (or go really deep for one more tag of the base line). Remember this is a long-term analysis (month chart) and we may not see a break out until 2020 or later.
Short XOP (After potential bounce next few weeks)XOP the same set up as XLE. My indicator has broken the upward trendline before price breaks the triangle.
I expect the price to move up a little next few weeks so as my indicator to retest the broken TL. If my indicator fails to break above, then look to short it hard.
TP: 12
New Oil Long Trade Location Previous Oil long idea did not end up reaching the target - let's try again. Along with my SPY trade idea, I believe oil is due for a nice rally, even if in a counter trend capacity.
Directional Bias: Long
Price Target: 72
Good Entry: Breakout Above 68.5 or another retest of low 66 area.
Risk/Reward: Risk no more than 100 ticks/ 300-600 tick potential reward
THE WEEK AHEAD: TWTR EARNINGS; USO, EEM, IWM, UNG, XOPTWTR announces earnings on Thursday before market open, and with a rank of 92 and a 30-day implied of 70, it presents ideal metrics for a earnings announcement volatility contraction play.
As of Friday close, the November 16th 25/34 short strangle is paying 1.57 (.79 profit at 50% max), with a net delta of .39 and a theta of 6.45, and break evens of 23.43/35.57 (wide of the expected move).
For those willing to bet a little more strongly on its not moving much more than the expected move: the November 16th 29 short straddle is paying 4.47 (1.12 profit at 25% max), with break evens of 24.26/33.74.
On the exchange-traded fund front: USO (73/30), EEM (67/25), and IWM (66/22) round out the top three underlyings when sorted by rank. UNG (42/41); EWZ (56/38); and XOP (53/32) are the top three when sorted by 30-day implied.
Possible Trades:
A USO December 21st 14.5/15 skinny short strangle* is paying 1.10 at the mid price with break evens of 13.40/16.10. Given the fact that this is basically a short straddle setup where I would shoot for 25% max, 1.10 isn't exactly compelling on a 1-contract basis (.28 at 25% max), but its small size makes it ideal for layering on setups over time in order to generate a worthwhile, multiple contract position that has some juice in it.
An EEM, December 21st 39/40 skinny short strangle is paying 2.68 at the mid price with break evens of 36.32/42.68. Go 25-delta short strangle -- the 37/42, and you bring in 1.24 in credit with 35.76/43.23 break evens. For defined risk, there's the double diagonal, (See Post Below). The December 21st 35/37/41/43 iron condor pays .70; going three-wide won't pay at least one-third unless you bring in the wings to a 35/38/41/44, which is paying 1.33.
An IWM December 21st, 16 delta, 139/165 short strangle is paying 2.43 with break evens of 136.57/167.43, which encompasses much of the last 52 week's range between 142.50 and 173.39. A delta neutral 141/145/162/165 iron condor pays 1.40; the slightly narrower 142/145/162/164 pays 1.05.
With UNG, I've had my eye on a short setup, (See Post Below), but don't want to pull the trigger too early. We're winding into winter, after all, which generally means increased natural gas usage and draw downs of current supplies. That being said, the notion behind the setup is that even if my timing is slightly off, a setup with a long-dated back month will eventually benefit as we emerge from winter, so I'm looking at putting the back month out in time and in an expiry when seasonality favors natty weakness. Unfortunately, the only available post-winter expiry is April, and I'd rather have an early to mid summer back month, so I'm fine with being patient here.
XOP has been double whammered with broad market weakness on top of oil weakness and is now at the bottom of the range between 40 and 45.50 it's been in since mid-April and a bit above the middle of its 52-week range between 31 and 45.50 with the low set in the early February sell-off. To me, that suggests "directionally neutral": the December 21st 40 short straddle pays 4.16 with break evens at 35.84 and 44.16; the 36/44 short strangle in the same expiry pays 1.40 with break evens at 34.60/45.40.
* -- The reason I would go with a skinny short strangle here instead of a short straddle is because price was 14.72 as of Friday close, which is in between the 14.5 and 15 strikes.