Wednesday, September 15, 2010

Crunching stats and creating meaningful charts...

Let me first disclose a short trade that I took yesterday on Crude via short 3 80/83 call spreads for $0.90 or about $2,700 max gain if expired worthless (exluding commissions). When I first looked at the trade the spread was trading for over a buck and came off a little. When I contacted my broker I was trying to get in for about .96 but as the spread starting dropping fast with Crude really coming off I decided that I needed to lower my bid. So I dropped my size from 5 lots to 3 lots @ .90 and left the other 2 on for the day at .96 in case it got back up there. But it never did.

I took this trade as 70-80 has seemed to contain oil for sometime besides the occasional move outside of the range. I don't expect to hold this to expiration and will take it off if I can realize 50% of the profit in a short period of time. At the time of initiation the lower strike that I solde only had a 35% chance of expiring ITM. I do however have a contingency plan to sell more if crude were to rally to $80+. I would still be a net seller of premium but would go out several strikes and sell twice as many spreads that I have now...of course as long as I still have the same view I do today.

Above I outlined the trading range that Crude has been in the last few months. Also take special notice of the rejection at the 200 day moving average that sent back below its 50 day moving average as well. All I need is about another $1.50-$2 move lower and I can probably get out for 50% of the premium that I collected. The spread closed around $0.75 today. So I either need the further move down or will have to wait for the effects of time decay. I have set an alert for to tell me when the spread is at or below 0.45.

Now onto the other research that I have been doing...

Over the past few weeks I have been pulling historical data for futures and the physical spot market. For futures I have put together studies to make seasonal plays on the differentials between HO and RBOB.  There are certain times of the year when HO trades at a premium to RBOB and other times of the year that RBOB trades at a premium to HO. The obvious examples are heading into the winter months the demand for HO increases thus driving it higher and trading over RBOB. For RBOB it is as we leave the cold winter months and head into the peak driving season, with demand falling off for HO and demand picking up for RBOB it reverses the relationship. In addition to this analysis I have put together an extensive analysis on the diff's for some of the major products here on the west coast in the spot market that I will be trading via EFP.

During my research I have devised a trading system to trade the spot market. From what I gather most of the traders in this space trade based off of word of mouth and fundementals. I want to use this with some added science.

I will post more detailed posts on this in the coming days and weeks.

1 comment:

  1. My alert went off this morning on the call spreads that I sold on Crude earlier this week. I bought back for 50% of the premium.