Max Profit: 200/contract Max Loss/Buying Power Effect: Undefined/$610 ROC: 32.8% ROC at max; 16.4% at 50% max Break Evens: 36.80/78.70
Notes: A high probability of profit 2 standard deviation short strangle ... .
Comment
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A bit of a roller coaster here and not for the feint of heart. Bit of intratrade drawdown on these on movement + vol expansion with this setup currently valued at 5.40, so that's bigger than a 2x. Nevertheless, going to stick it out since price is well clear of the short strikes, and this move/vol appears to be an outlier.
Trade closed manually
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Covering here for 1.30; .70 ($70) profit per contract.
Crude stockpiles down for the third week in a row. John Bolton is out (seems to have moved the oil price). But any concerns about the IVR or IV relative to the average HV on oil? On USO the IV seemed to be looking about average.
NaughtyPines
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@dime, In this case, the IVR is misleading due to the OVX pop from Nov to Jan. I think that /CL is paying on an objective basis in both the Nov and Dec cycles with the Nov IV at 34.9% and the Dec at an even 35.0%. And given the width of this particular short strangle (particularly against the backdrop of /CL price action), I'm not particularly concerned about an intratrade vol expansion, although you certainly want to be mindful of the somewhat dynamic nature of SPAN margin and size appropriately so that if that does occur, you don't crap your pants.
NaughtyPines
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@NaughtyPines, The notion here is also not to wait until IV term structure devolves to a "local" expiry, where the a vol expansion will be felt the greatest if it does occur. Put another way, expansions affect shorter duration expiries more acutely as a general matter than ones farther out in time. The tendency may be to wait for "on approaching worthless" to take these off, but that is probably not what you want to do with these generally, even though it may be enticing to do that.
dime
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@NaughtyPines, interesting the 252 day average OVX sits at 35. I guess the big question is if we could see another year end melt down like last year.. oil deflating on lower global growth expectations or whatever
NaughtyPines
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@dime, Lot of different things pulling on crude: OPEC, broad economic growth forecasts, dollar strength/weakness ... .