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WTI crude bearish setup at 34.70 - hedge via short WTI futures

FX:USOIL   Crude Oil (WTI)
998 2 13
Shooting star candle pattern formed at 32.78 after three weeks of uptrend.

This bearish pattern is traced out after rejecting resistance at 34.69 levels where it has recently shown a strong demand & supply zone(see yellow circled area).

It has cleared the one more crucial supports at 33.47 amid the formation of this pattern.

The leading technicals indicators signal selling pressures - RSI signaling divergence to the previous brief upswing rallies (currently RSI 14 trending at 54.7125 while articulating).

While slow stochastic approached above 80 levels and an attempt of %D crossover (currently %D line at 82.9161 & %K line at 79.4902), so overall we don't see any sort of strength in this commodity from here onwards.

Hedging perspectives: Short hedge (WTI Crude Futures )

Spot ref: $32.89
Futures ref.: $29.54

Thus far we saw brief upswings, as we don't see the momentum in the same uptrend at this juncture and synthesizing above bearish technical indications, on hedging grounds we recommend shorting near month futures for target towards $29.54 levels again, however short term traders keep a strict stop loss at 34.85 levels on a closing basis. Thereby, we have attractive risk reward ratio.

Should the underlying commodity price keeps falling, the gain in the value of the short futures position will be able to offset the drop in revenue from the sale of the underlying.

This strategy can also be deployed if you think puts are overpriced relative to calls, the arbitrager would sell a naked put and offset it by buying a synthetic puts. Similarly, vice versa when you think calls are getting overpriced in relation to puts.

Arbitration can also be possible through box spreads where buying debit call spreads and debit put spreads for a risk-free returns.

The opportunity for arbitrage in options market exists once in blue moon for individual investors as price discrepancies often appear only for a few moments.

Light Sweet Crude Oil (WTI)             futures and options are the world's most actively traded energy product. WTI plays an important role in managing risk in the energy sector worldwide because the contract has the most liquidity and most transparency.
AMBRISH
9 months ago

Thanks,
Reply
fmahmud9001
9 months ago
Good analysis.
Reply
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