Instead of selling a short strangle, it's better to buy some OTM contracts at next to nothing to make the trade efficient in terms of buying power. The breakeven points on the trade aren't GREAT, but, the trade is pretty low risk. If it works, great and if not, hey, we'll get 'em next time.
Above the blue shaded region want to be long for a short timeframe move.
RR is there. However, risk adjusted returns may be better in sectors with better relative strength.
Trade may not be suitable for all risk profiles
AMEX:OIH tried to breakout of its range but could not do it. As the adage says, "There is nothing more bearish than a failed breakout." And, though the concept of a failed breakout can be debated, this tried to move upward but could not and has two strong bearish days behind it pushing it below previous support. This is looking like a very clear downward move.
After suffering a long draw down, spot oil has recovered well but this services ETF is lagging.
Going back to the beginning of the year, OIH has been in a range between $16 and $18. Fueled by spot oil pushing $60 along with a positive sentiment in the overall markets (S&P 500 broke out yesterday over 2815) there's no reason this shouldn't run to $20 soon.
... for a 2.62/contract credit.
Max Profit on Setup: $138/contract
Max Loss on Setup: $262/contract
Debit Paid to Spread Width Ratio: 65.5%
Break Even: 18.62 vs. 18.60 spot
Notes: Taking a bullish assumption directional shot in OIH with plenty of time to work out/reduce cost basis ... . Will look at taking profit at 50% max.
SLB and HAL 2 examples of top holdings. It's time for the down trend pressure to end for now. This is a slow moving sector and most all stocks in this space gaped lower after last earnings. Time to create a shopping list if dip buyers show up.
- They are "Twins" in long term.
- In short term, since last high on MAY 17, 2018, OIH is weaker than XLE.
- Lower lows and lower highs for OIH
- OIH is on the supportive price formed by last two reversing points
- XLE does not hit the lower, instead it has a higher low which looks like it has reversed the downtrend
If XLE is the right, it means OIH has found or...
Oil Services has been lagging the energy recovery.
This could be the start to another move higher. Recently OIH has had massive under-performance relative to oil.
Breakout out or get out. Maintain the RR. The under performance has be significant thus far.
... for a 2.36/contract credit.
Probability of Profit: 55%
Max Profit: $236/contact
Max Loss/Buying Power Effect On Margin: Undefined/$525/contract
Break Evens: 23.64/28.36
Notes: Did this from my phone on Friday ... . Although I like to see >35% background implied volatility when pulling the trigger on these, at 30.3%, this...