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Nott sure on how to word this.
With strangles do you buy back the money maker and wait. For time erosion for the other. Reason I ask is I have a couple markets where I am up good on one and it's touching on the other.
With a strangle I tend to roll the untested (up) side when the tested side (down) is about 200% down (the option price has tripled).
I use a low delta (4 to 5 for each side of the strange), and I find that one side quite easily doubles in price.
Other prefer to adjust earlier (e.g. at 100%). As they say, you need to be able to sleep well.
When I roll one side, I try to have again a delta of 4 to 5.
Eg I have a NGU7 C4,75 P2,5 strangle, where the p2,5 is now about 140% down.
If NG continues to fall I will roll the call eventually to 4,00 or so.
If NG would then continue to fall, I would in a second adjustment close the put and roll the call a bit further down to have less loss. If there is still enough time left.
If the situation indicates that there is a fundamental change in outlook for the market I will not roll but just close.
E.g. if an trouble in the ME indicates that CL will be impacted drastically, I would just close the position.
Or the chart shows a big change in trend.
Other roll the tested site, but the above way worked better for me.
I only do the very liquid markets so this approach may not work in other markets.
I also always have ample liquidity to meet margin requirements.
I place GTC order to exit each side option at $20. This way if one side is making a lot of profit, I exit at a price that there will be some sellers. Otherwise I just keep both sides on until net premium drops to about 50%.
If I had a short option that was about to go ITM, I would exit it.
They expect lower prices this and next years. After that they expect much higher prices, due to less exploration and the current wells declining.
They also discuss that Saudi seem to actively work on backwardation, to hurt the US shale industry. That would make it possible to invest in CL futures or calls 3 years or more out. (I do not see a way for me to do this).
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
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That's interesting. I wonder whether WTI and Brent fundamentals detach again. Continue to be surprised how the trading community and media's focus seems to be on WTI and not Brent.
Backwardation. That's the Goldman Sachs diagnosis for OPEC success. WSJ did a big piece on it a few weeks back. I don't normally link articles behind pay-walls but I did link John Kemps discussion of it here. Basically OPEC would get to sell physical oil at a premium price while shale hedge at a discounted price. Of course currently the opposite is happening although not as badly as it was previously. Spot WTI (Brent) is just over $47 ($49.50) while the forward curve is $48.50 ($51).
They did not specifically discussed detachment of WTI - Brent in terms of price, but they discussed that US refineries need heavy oil such as from Saudi Arabia, and that WTI from the US is too light and needs to be blended. This is why shale from the Permian basin will not be enough in the long term.
They expect that WTI will become less available in the next years anyways, as no new fields are explored and production is not as cheap as some would have it. this is one of their arguments why they expect sharply rising prices by around 2020.
Art Baerman is an oil driller working in the field, and mentioned quite disparagingly that many of the traders are young PhDs with little experience in the practical issues...
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
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Thanks @manuel999. I have a macrovoices subscription but am behind in all my listening but this was really good. Art Berman is a very good interview, and you weren't joking they really are bullish the back end, and I think they could be right. Unfortunately timing is everything. I don't think buying the back end will be as easy as he says, as I think theres a lot of people looking to do that on any dip.
That's kind of what happened with Brent, it's so small that the index is now BFOE, Brent Forties Oseberg & Ekofisk. WTI production will decline but it will be replaced by something else.
I must have missed that bit. I don't have a PhD so he obviously wasn't talking about me. having worked with literal rocket scientists though I can say they definitely 'can' have a problem seeing the forest through the trees.
On a related note though, I spent several years as a crude swaps dealer, making markets for producers, and I can tell you this, I never ever meet a producer who thought prices were going down, they all think prices are going to the moon!
Are you also surprised that troubles in the ME with Quatar seem to have so little impact on price?
In the past I would have thought this will be a good reason to have a 5% spike or so, but now: nothing.
