Possible Crude Oil Strategy

[Amos 4]

 

Had an idea since I been trying to absorb all this option jargon and strategy. So thinking of my strengths which is chart analysis and knowing when to stay on the sidelines, Options have changed that approach from what I have gathered. Instead of running from a fire, options traders run towards it because it is where the most money can be made like earnings or some significant event like Brexit.

With that said I traded futures for a long time and my main instrument was crude oil(CL). I know every week crude oil inventories are released and that was considered my off day due to so much volatility. As you can imagine the word volatility made the light bulb flicker just a tad.

Has anyone looked at crude oil(CL or /CL) as a possible trade. I quickly glanced at inventory release for a few weeks just looking at IV on the charts. I was thinking a straddle would be profitable. The setup I noticed without any back-testing but just looking back at the past 6 weeks is enter the prior Friday and close shortly after inventory release.  I have seen inventories shoot all over the place a 100 ticks in mere seconds. Plus as I stated the IV starts to climb on Friday evening it seems and tends to peak by Inventory trading day close which is mostly  on Wednesday.

So to clarify with the recent example on when to enter and exit please see below:

 

Crude oil Inventory release date this past Wednesday was on july 20th

Enter trade by pit close on Friday July 15th.(straddle)

Now wait for the July 20th Inventory release which is at exactly 930am central time. Then after it happens look for a nice gain and close.

Not Sure how this trade would pan out which is why I am asking all of you, what is your opinion and has any one looked into it. This news impact happens every Wednesday unless holiday occurs during the week which usually puts the event on a Thursday. If no holiday it is always on Wednesday at 930am central time no matter what.

Again nothing is set in stone with the above possible trading setup. Just curious if anyone has tried to figure a method around this economic event that triggers massive moves and IV increase.

[Amos 4]

I tired backtesting this strategy but TOS kept giving me N/A on date in options ,and I may be doing it wrong as I am still learning the platform.. I am not even sure it can work. I was just wanting to share this with all of you who may know if this is a good or bad idea in the option world and if a possibility exists to capitalize upon a weekly event that will always occur.

 

[Edwin 63]

How's the liquidity in /CL options?  I don't think this site has historically traded Futures Options.  Have you looked at trading an ETF like USO instead of /CL options?

[Amos 4]

1 minute ago, Edwin said:

How's the liquidity in /CL options?  I don't think this site has historically traded Futures Options.  Have you looked at trading an ETF like USO instead of /CL options?

I am not sure exactly how liquid crude oil options are. I know the futures market is very liquid as you can imagine but on the options side I just do not know for sure.

 

I have looked at USO out of curiosity, but never compared it to the weekly crude oil inventory release. So I need to look if USO moves like CL on this news event.

[Amos 4]

Looked at USO and it does move at the economic weekly event. I figured out how to back-test some of this, but I believe TOS does not show the Greeks. Well I have not figured out how to show the Greeks when i click on-demand.

Anyway I checked some of the straddles and they do work and some do not. I don't have enough Options experience to suggest any idea's which is why I am hoping someone can say here is an idea or this is the most retarded idea in the existence of Options trading. Either way I will likely learn a thing or 2.

I just entered the straddle 1 hour before the event as I saw IV is different than CL. I also used the current weekly in USO. Again I have no idea if this is a waste of time or not but wanted to share what I have known for a long time is crude oil moves violently during inventory release at 930am central every Wednesday unless holiday.

[Kim 7,943]

@Amosthanks for posting.

 

We do trade options on futures (VIX), and can definitely try something new if proved a good strategy. I cannot backtest it on CL since ONE software doesn't have options on futures.

 

Here is one potential issue I see: since this event happens each Wednesday, it is a well known public event and I would guess that options would price it, in the same way as they price earnings. So holding straddle through the event is like holding it through earnings. But we can also try RIC which we do for earnings. I will also check USO which tends to track oil pretty well. 

[Amos 4]

3 minutes ago, SteadyOptions said:

@Amosthanks for posting.

 

We do trade options on futures (VIX), and can definitely try something new if proved a good strategy. I cannot backtest it on CL since ONE software doesn't have options on futures.

 

Here is one potential issue I see: since this event happens each Wednesday, it is a well known public event and I would guess that options would price it, in the same way as they price earnings. So holding straddle through the event is like holding it through earnings. But we can also try RIC which we do for earnings. I will also check USO which tends to track oil pretty well. 

@SteadyOptions

I think USO will work. I noticed a RIC could work because you can keep the bounce under the roof. Now will it be profitable as I am not sure. I just don;t have the experience in options to tweak back and forth. I am trying to figure it out as I go but I may be missing key details due to experience.

Thank you too for helping me and looking into the idea.

 

Here is a link for anyone who wants to just check the inventory release time. Just click on the little calendar to customize the past dates and if you want to look at something else you can likely find in this calendar. FOMC meetings is another idea that comes to mind as we see a lot of movement when Yellen and company speak.

http://www.investing.com/economic-calendar/