84% PoP - Playing the Oil Prices with /MCL Futures $USO $CL
I've decided to make a play on the oil prices and chose /MCL futures for this venture. The trade required a BP (buying power) of $600, with a maximum profit potential of 1.07cr. This sets up a favorable risk-reward ratio of 1:6. The IVR (Implied Volatility Rank) stands at 51, which is advantageous for the credit strategies I prefer. With a PoP (Probability of Profit) of 84%, the conditions seem ideal for the 34 days duration I've set for selling the 70 put leg.
I opened an semi-bullish position with a put short on the January expiry /MCL futures. My expectation is that the oil prices will either not fall too rapidly or will actually rise. For future management of this position, I have two scenarios in mind:
If the Oil Continues to Fall Strongly: In case the oil continues its strong downtrend, I plan to sell a call leg on top, transforming the position into a strangle from the current naked put. If the fall is steep, or I fear that the break-even point of $69 might be breached, I'll hedge my risk by purchasing a put around the 60 strike, turning it into a credit spread and wait for the 21 DTE (Days to Expiry).
Stagnant or Slight Rebound in Oil Prices: If the oil price doesn't move much or rebounds slightly, I'll quickly close my position for a profit. The target? About 50% of the original credit received for writing the put, which amounts to roughly $50. This would mean a 10% return on my utilized capital, which I find quite satisfactory.
In summary, this strategic move in oil futures trading is well-aligned with my risk appetite and trading preferences, providing a good balance between risk management and profit potential.
