Impact of Hurricane Ida
Hurricane Ida made landfall in Louisiana, USA on August 28-29, which brought great complexity to the surrounding crude oil and refined oil production bases. Impact. Simply put, the hurricane caused widespread power outages throughout the New Orleans area and much of Louisiana, and it could take weeks to repair and restore power. Several refineries went offline due to a lack of power, causing panic about gasoline supplies and causing speculators to buy large quantities of gasoline futures in the crude oil and refined product derivatives markets.
A rising tide lifts all boats, and the increase in crack spreads and gasoline prices has also led to a temporary upward trend in the entire crude oil market. In addition, related components of offshore oil production derricks in the Gulf of Mexico have also been affected to some extent by the hurricane, which has increased the confidence of bulls in the crude oil derivatives market to continue to hold positions.
The OPEC meeting ultimately maintained the production plan unchanged
Although OPEC decided at its meeting last Wednesday, September 1, not to change its decision at the July meeting and continue to increase production by 400,000 barrels a day per month. However, speculators still pushed the price of the main contract, namely October futures, to the highest price of $70.61 last Thursday in the WTI crude oil market. My personal view is that WTI crude oil’s strong rebound from $62 ended last Thursday. (Please see the picture below)
Now that summer is over, gasoline consumption will gradually decrease , the refinery will enter autumn overhaul mode. The crude oil spot market will enter the stage of increasing inventory. The crude oil derivatives market will continue to undergo a difficult long-term price adjustment.
Options Market Strategy
This This complex and lengthy price adjustment will most likely fall within the range of $76 to $58. Therefore, selling a wide strangle (Sell strangle) of $75 to $55 in March or June next year is a relatively feasible option trading strategy choice.
Among the neutral strategies in the options market, the most commonly used strategies are straddle and wide. Strangle. Straddle or wide arbitrage consists of buying or selling two options in different directions at the same time. It does not have a clear direction, so it is suitable for neutral markets. In particular, it is best for investors to engage in buying straddle arbitrage or wide straddle arbitrage strategies when volatility is low. This will cost less and also have the opportunity to earn some profits from the rise in option prices when volatility rises. . (Please see the picture below)
When prices fluctuate within a narrow range for a long time, it is impossible to discern the future of the market. direction but expect a sharp rise or fall after the breakout, using a buy straddle or wide straddle is most likely to generate considerable profits. After a large price fluctuation, when the market is expected to enter a volatile consolidation and narrow range fluctuations, using sell straddle arbitrage or wide straddle arbitrage will yield relatively stable returns.
In short, in a neutral market, when volatility is low, use buy straddle or wide spread Straddle strategy, and when volatility is high, use a sell straddle or wide straddle strategy.
The Greek value risk management of selling a spread is much more difficult than buying a spread. This is because the Gamma value of the position of selling wide spread is negative. A negative Gamma value causes the change in position delta value to be in the opposite direction to the market price change. As the market rises, the position delta value changes from flat to negative, and the negative value becomes larger and larger. When the market falls, the position delta changes from flat to positive, and the positive number becomes larger and larger. Therefore, the risk management of selling wide arbitrage requires very experienced option traders to control it well. This is a very challenging task.
The Chicago Mercantile Exchange WTI crude oil (trading code: CL) options market is the world’s largest exchange-traded crude oil. options market. On the CME Group, there are two most commonly used WTI crude oil options related to WTI crude oil: one is a standard option, also known as a monthly option, and the other is an ultra-short-term option, also known as a weekly option.
The common points between WTI crude oil standard options and ultra-short-term weekly options are as follows: 1. They are both American-style options, 2. All are settled from spot to WTI crude oil futures contracts (trading code: CL).
The difference between the two is that the longest options for weekly options (trading codes: LO1-LO5) are only five Week. Standard options (ticker: LO) have 36-month options, plus six-year longer-term options with June and December expirations. The expiration date for weekly options is every Friday and the expiration date for monthly options is the third business day before the expiration date of the monthly futures.
Now for CME Group WTI crude oil options, whether they are short-term options or standard options, the distance between the agreed prices has been It has been reduced from the past 50 cents to 25 cents, which will be of great help in accurately managing the Greek value risk in options trading. </p
