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Diary of a WTI options market maker

GL

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I have been a trader since 1980. I started trading options in late 1983. I lost every penny of a $1.6 million portfolio in the crash of October 1987. What doesn't kill you makes you stronger. I have a undergraduate degree in Finance. I have a Masters degree in Economics. I have completed about half the requirements of a PhD in Financial Economics. I don't advise pursuing a PhD unless you want to be a teacher. It will not make you a better investor/trader. I developed a trading strategy involving shorting calls against GUSH in 2015 that I managed for a trucking firm to alleviate the strains of high fuel prices. Early in 2019 the owner of the trucking company sold the company and devoted his time to managing just the strategy itself. He said that he expects to make more profit in 2020 from writing calls against GUSH and writing puts and calls against his WTI contracts than his 32-truck transportation company ever did...all from his home...in his pajamas.

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6 minutes ago, Mario Andretti said:

Congratulations. All with futures contracts ? No options ?

No options... just a combination of ES/CL contracts. I have increased the number of cars on the CL (~5) as I now have a grasp of its movements. See chart for movements... just sinewaves combined with VSA.

CL_Chart.JPG

Edited by OilProspector

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Sell them ? I covered my 2 March 54 puts at $1.95 a few minutes before the market closed. Still long the 2 March futures contracts.

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16 hours ago, OilProspector said:

No options... just a combination of ES/CL contracts. I have increased the number of cars on the CL (~5) as I now have a grasp of its movements. See chart for movements... just sinewaves combined with VSA.

CL_Chart.JPG

What indicators are those and what time frame?  

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2 hours ago, Dan Moore said:

What indicators are those and what time frame?  

Custom Renko bars and one of the indicators is proprietary (mine ~ actually based off VSA (Volume Spread Analysis) knowledge with (sine)wave cycles)) ~ others there are TMF (Twiggs Money Flow), jtHMA (Hull Moving Avg.), STC (Schaff Trend Cycle), BR_Heatmeter... all run through thousands of hours of back-testing. Very time consuming but worth it in the end.

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Feb 15 2020

   The two March 54 puts were "Bought to Close" at $1.95 on Friday netting a profit of 2,000 × ( $2.67-1.95 ) = $1,440. The March contract itself closed at $52.25. These were purchased at 52.67. This is a current loss of $840 on the 2 long March contracts. Profit from the previous position of 8 short March contracts was $18,400. This totals $19,000 in trading profit derived from March contracts so far. The March contract expires 2/20. 

April Options Strategy Evaluation

   The 2 long  April contract position closed at $52.51. This is down from the purchase price of 53.40 for a current loss of $1,780. The 2 April 54 puts closed at $2.95. They were "Sold to Open" at $3.26. This is a current profit of $620. The combined total results is a current loss of $1,160 for the April options strategy.

May Options Strategy

   The 2 long May contracts closed at $52.78. This is down from a purchase price of 53.21 resulting in a current net loss of $860. The 2 May 54 puts closed at $3.48. They were "Sold to Open" at 3.77. This is a current profit of $580. The combined total results in a current loss of $280 for the May options strategy.

June Options Strategy

  The 2 long June contracts closed at $52.96.This is down from a purchase price of 53.40 resulting in a loss of $880. The 2 June 54 puts closed at $3.84. They were "Sold to Open" at $4.03 resulting in a current profit of $380. The combined total results in a current loss of $500.

Week to Week Comparison (March-June)

  For the week ending Feb 14th the contract portion of the strategy has a current loss of $4,360. This is up from the Feb 7th loss of $20,980. This is a gain of $16,620 week over week. The options portion of the strategy which was at a loss of $9,940 turned profitable this week at $3,020. This is a gain of $12,960. The combined move over the last week is $16,620 + 12,960 or $29,580 for the March-June Options strategy. Since implentation of the strategy the profit/loss is a loss on the contracts of $4,360 and a profit of $3,020 on the options portion of the options resulting in a current loss of $1,340. The $18,400 profit from shorting the 8 March contracts is not included in P/L for the options strategies. 

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45 minutes ago, OilProspector said:

Custom Renko bars and one of the indicators is proprietary (mine ~ actually based off VSA (Volume Spread Analysis) knowledge with (sine)wave cycles)) ~ others there are TMF (Twiggs Money Flow), jtHMA (Hull Moving Avg.), STC (Schaff Trend Cycle), BR_Heatmeter... all run through thousands of hours of back-testing. Very time consuming but worth it in the end.

 

Thanks for sharing OP.  

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Feb 15 2020

  March WTI closed Friday at $52.25 trading 572K contracts. April WTI closed at 52.51 with 261K contracts trading. March RBOB closed Friday at $1.5869 on 64K contracts. The April RBOB contract closed at $1.7310 on 70K contracts. The April RBOB is already the lead month. If you could sell something for 10% more by storing it a month and selling it next month would you ? Buy March WTI at 52.25 and sell the April RBOB contract at 1.7310 ? What happens when the March RBOB contract expires. 

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AK

(edited)

Gary what about calls ? For each month you sold puts @54 why not also progressively selling calls option of 56 57 58 for April May and June ? Would that not give you those calls to close like now to gain a profit when price goes down ?

At AKA: If I had done it your way I would have made less money than I did. A better question would be " Why not sell the 59 calls at $3.00 or the 58 calls at a price higher than $3.00 ?". Right now I am making around $16K-20K per month with the current options strategy. My average Net Sale Price is 20% above it's Net Purchase Price. In other words I am selling at $60 what I'm buying at $50. Every month for over a year now. Why rock the boat ? I started with 1 contract paid in full in 2017. I currently own 8 outright. By the end of 2020 I should have 14-18 contracts paid in full. The options market for WTI is the most-lucrative most-rigged market I have experienced in 41 years of trading. Put yourself on the right side of the trade and the money just rolls in. It's all technique.

Edited by Gary LeBlanc

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Feb 17

   I have orders pending to Sell to Open 2 April 58 calls at $3.00, 2 May 58 calls at $3.00 and 2 June 58 calls at $3.00. Just have to wait. In the meantime the 54 short-put positions continue to erode away. My Net Purchase Price for my March contracts is $52.67 - ( 2.67 - 1.95 ) or $51.98. Still long 2 March contracts. Options expired Friday for the March contracts.

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Yes I see your point there with the wait for better option entry . Also Would you advise for a newbie like me with funds to buy 1 or 2 contracts into option to start with 2 April or 1 April and 1 May ? And why ? Thanks 

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I would advise you to buy 1 April contract and short 1 Apr 54 put. Your Net Purchase Price would be around $49.50. Keep the rest of the funds as a safety net, but theoretically do the same trade for May as the trade for April so you can study the differences.

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Gary, it's an interesting approach. Would you say that it's critical for the success of your system to achieve your minimum required premium for the 54 Put ($4 say)? Also, do you regard the futures as a help or necessary evil,  Thanks

Reply: I think anytime you can buy WTI for a Net Purchase Price of $50.00 you should do it. Just give yourself at least 30 days to expiration. My broker requires I own the contracts 100% paid for to "write" options against them. About to post my updated portfolio as of 9:00 a.m. EST today ( about 20 minutes ago ).

Edited by Gary LeBlanc

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I appreciate traders like you who have the balls to admit past failing. I for think it's an attribute while looking out for a trader.

 

Great job with this apt article and site at large!

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Feb 19 2020

  March Contract Trading Results 

   Shorted 8 March contracts at $58.05 and covered 8 March contracts at 55.75 for a profit of $18,400. Bought 2 March contracts at $52.67. Sold to Open 2 March 54 puts at $2.67. Bought to Close 2 March 54 puts at $1.95 for a gain of $.72/barrel. This gets deducted from the $52.67 original purchase price leaving a Net Purchase Price of $51.95. The March contract is currently $52.88. A running profit of $1,860. The total trading profit is $20,260 so far for the March contracts.

April Contract Trading Results

   Bought 2 April contracts at $53.40. Currently trading at 53.11 for a loss of $580. Sold to Open 2 Apr 54 puts at $3.26. Currently trading for $2.25. This is a profit of $2,020 resulting in a net profit of $1,440 for the April contract trading.

May Contract Trading Results

 Bought 2 May contracts at $53.21. Currently trading at $53.37 for a gain of $320. Sold to Open 2 May 54 puts at $3.77. Currently trading at $2.83 for a gain of $1,880. Combined the net profit so far for the May contracts is $2,200.

June Contract Trading Result

Bought 2 June contracts at $53.40. Currently trading at $53.57 for a gain of $340. Sold to Open 2 June 54 puts at $4.03. Currently trading at $3.23 for a gain of $1,600 for a combined total of $1,940 in profit for the June contracts.

Evaluation

The contract portion of the portfolio is up $480. The short-put position is up $6,920 over the same timeframe. It's all about the options.

Edited by Gary LeBlanc

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Feb 19 2020

 Sold 2 March contracts at $53.50. Net Purchase Price was $51.95. Bought 2 July contracts at $53.86. Sold to Open 2 July 54 puts at $3.56. Net Purchase Price is $50.30.

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Feb 19 2020

Portfolio valuations are based on the closing prices today.

2 April contracts purchased at $53.40 are now 53.49 for a gain of $180. 2 April 54 puts Sold to Open at $3.26 are now 2.06 for a gain of $2,400. The combined profit is $2,580. 

2 May contracts purchased at $53.21 are now 53.74 for a gain of $1,060. 2 May 54 puts Sold to Open at $3.77 are now 2.65 for a gain of $2,240. The combined profit is $3,300.

2 June contracts purchased at $53.40 are now at 53.90 for a gain of $1,000. 2 June 54 puts Sold to Open at $4.03 are now 3.07 for a gain of $1,920 for a total of $2,900.

2 July contracts purchased at $53.86 are now 53.95 for a gain of $180. 2 July 54 puts Sold to Open at $3.56 are now 3.54 for a gain of $40 for a combined total of $220.

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Feb 20 2020

  Long 2 each April-July contracts. Short 54 puts against all 8 contracts. Effectively long 16 contracts. All positions are currently profitable.WTI currently $54.12 at 9:50 a.m. EST

Edited by Gary LeBlanc

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Hope your not out sailing Gary... Though time is on your side for recovery I show you taking ~26k of heat currently. For me, this is the difficult part of your strategy. I am always concerned of the outlier event. I got the popcorn out. 😉

Edited by OilProspector

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Sailing ? No. It's Mardi Gras weekend and I'm Mardi Grasing as I should be. Oil goes up and down. That's why the the OVX has such a high value compared to the VIX. I don't hyper-trade. You do. I only trade options. You don't. Our systems are different and that's because of my design. Not yours. All my contracts are trading above their Net Purchase Prices. Oil is building a base still. For me it's all about the "time". For you It's all about the price. Time is money in the options market. As I said earlier anytime you want to start a blog where we can compete on strategy I'll be there. As of yet I have not seen a blog concerning that.

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7 minutes ago, OilProspector said:

A bit touchy there.

OilProspector, 

 

Gary (and a few others) asked you to start another blog if you want to compete on strategy, to devote this discussion to his strategy. Why don't you do that? I'll certainly follow, your strategy looks interesting. But this is not the right place for many of your posts... Be a gentleman, do the right thing, etc. etc. Let us know when you've set up your blog. 

 

-M 

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And the sycophant(s) appear. Marie... your comments have no bearing on my post to Gary. Please re-read.

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