oil volatility.... best way to sell...

Right now the vol line in oil is very high.. Are any of you guys sellling it and if so how? butterfly options spreads? or what? there is no ovx futures to trade anymore... so what...

 

I don't trade oil it's a too unpredictable commodity. Oil's fall couldn't happen to a more deserving industry, more deserving companies, or more deserving speculators.

 

thanks for that post.. it was very additive.. haha geez....

 

Oil volatility is high but can easily go higher to levels seen earlier this year. I believe if you size the position correctly though, shorting volatility at these levels can be advantageous.

I’ve got a short strangle position on CL options, that’s one way to play it. The other, more aggressive strategy would be a short ATM straddle.

I use shorter term (front month) long options to hedge if required. You can do both of these strategies using USO options if you can’t trade futures, or want to use less leverage then a single commodity option.

I believe these strategies would accomplish what you’re trying to do, with the best statistical chance of the trade being successful.

 

thanks.. sounds like long gamma front .. short vega back.. with like a strangle swap or staddle swap.. which for me in my account would be in USO... This is essentially all one can do given there are no futures on volatility to get a more pure play on it.. I heard one person call something a fat strangle... i forget..

 

Oil vol is damn cheap now. VERY cheap.

 

what is expensive then? I don't have anything over a 5 year chart using ovx.. nothing else i'm going buy. .. I know this is very naive but i'm just looking to learn

 

i would think one would have to have some EOD options chain going back on actual futures options to really get an idea what real high vol numbers are in crude..

 

Regarding volatility being cheap, it depends on how far back you want to base your range. I don’t usually go much further back than 1 year, but volatility was much higher (nearly double on the OVX) at the end of 2008 and crushed after the first bit of 2009.

That’s correct, I’m short vega in the back(s) and if volatility rises much further, and/or the market moves consistently in one direction I start to buy front month options to reduce delta.

 

The best way to figure out if volatility is high or low is to check the quotes on the 1-strike OTM USO weekly options and compare them on a weekly basis - no need to go back further than a week.