The crude (CLZ14) +84P,-2*80P,+76P flys only cost 1.04 (mid) which has an almost 3 to 1 reward to risk. CLZ options expire Nov. 17 which is about 3 weeks away. There is some volume and bid/ask spreads are narrow. I think CL could easily end near 80 after violent swings. I can't think of any other way to try to trade CL because of the rapid movements. Delta is 0.06 or so short to start. The ATM straddle is almost 6 pts so fly is about 2/3 of that. I do not think there is any edge in the IV, but IV could easily come down. Is there some problem with these flys? Has anyone tried using them? I have lots of long deltas in small Shale fracking E&P which I would like to try to hedge. This is the only idea I have been able to come up with. It is not hedging, but I would not mind losing the 1k per spread on the up side.
Yeah, I trade flys on CL often. Personally, when you posted, I thought oil would be higher by now. A cursory glance (Friday morning) says the spread was about 1.30ish(mid) @ CL 80. So would you take the profit then? Since it was no longer effective as a directional downside hedge. Now at 80.70 it's a weak downside hedge, but time is still on the side of the spread. Personally, I still think we go higher in the near term, but may change mind any old time My initial response to your post was that the 1:3 RR is not very realistic this far away from expiry. You'd be doing well enough at 1/2, 1/3 or 1/4 max. profit. Today, @80, it looked to be about 1/10 max profit. Even if CL is at 80 at expiry the spread won't achieve max. profit. Still, this time at 80 may have been the best time to take profits. We'll see. Also, you wouldn't have to take max. loss any time soon. As long as CL remains in the low 80s, or high 70s, the spread is golden. I was going to respond earlier, but stuff got in the way. Hindsight and at present time, it looks like a good idea, especially as an addition to a long position (IMO).