Long term shorts in WTI crude means catching a falling knife

NYMEX:CL1!   Light Crude Oil Futures
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Long term shorts in WTI crude means catching a falling knife - Vertical spreads to hedge further upside risks:

Crude  Oil             is pulling away from the market’s biggest storm in seven years. A measure of price volatility has tumbled from the highest level since January 2009 as the market frenzy eases amid a potential pact between the world’s largest producers to freeze output. 

During Europe trading sessions, crude oil             for July delivery on the NYME shed 80 cents or 1.62%, ahead of inventory check and OPEC meeting, to trade at $48.30 a barrel.

Technical glimpse and hedging frameworks:     

Buying momentum has been shrunk away as bears taking control over prices from last couple of days but when we consider the short-to- intermediate term trend of this commodity it shows targets upto 50 levels and even upto 53 a barrel where it could test a stiff resistance at 21EMA.

Don't expect more slumps below 47.43, shorting at this juncture seems as if catching falling knife, wait for dips ahead of OPEC.

Current prices set to fly jumping above 7EMA after Dragonfly Doji formation, this bearish pattern is traced out at 33.75 on monthly plotting, since then considerable upswings along with robust volumes are in conformity to the strength in this commodity, at this juncture all leading oscillators converge rising prices.

The American Petroleum Institute will report estimates of U.S. crude and refined product stockpiles later today. Tomorrow, more close watch on inventory figures that are due from the U.S. department of energy.

Meanwhile, we advise vertical spreads using call options that is likely to mitigate short term bearish sentiments by reducing hedging cost and continued bull swings.

So, deploy 1M in the money WTI +0.51 delta call option (1% strike)and simultaneously, short an out of the money call (2% strike) of 2W tenor with positive theta or closer to zero.

This would mean that the chances of upside risks of would be taken care by long positions ( ITM             calls).

The hedging cost would be reduced by short positions if the underlying commodity price rallies after 1 week and prices stay stagnant within shorter tenor (should not go below 1% in 2W).

Vertical bull spread strategy is employed if you think that the price of the underlying WTI crude will rise reasonably in the longer term.
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