I hope you were able to survive the chaos that often surrounds holidays and found a bit of time to relax and enjoy Thanksgiving. It does remind us to take the opportunity to think of all the things we should be thankful for. 

As we move from one holiday into another season of holidays, the markets have presented us with one more thing to be thankful for.

Over the last few weeks, we have seen the price of crude oil take a significant dip. We have seen crude trade from just above $80.00 a barrel at the beginning of November to below $64.00 to finish the month. The downward move in crude price has carried over to the price at the pump. This translates to immediate savings for many of us who fill up vehicles on a regular basis. That savings often ends up being spent in other places, and retailers benefit from that.

I think the overall trend in crude can continue, but I am also aware that with every new low we have had a significant retracement. I like playing both sides of the market in this case.

The Trade

  • I am buying the February Crude 50-85 strangle (buying the 50 put and the 85 call at the same time). 
  • I am looking to keep the cost of entry to 25 points ($250.00) or better.
  • We are long premium so risk is defined to our entry costs plus fees and commissions.
  • I am setting an early target on the strangle at a 60-point exit. 
  • If we get a strong move in either direction you could also look to close out the legs individually. 
  • If crude trades in a sideways manner, I would try to limit a loss to 10-12 points.

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RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.