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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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Hey Gary,

Just wondering if there is a formula you use that shows the PCPR for WTI moving back to 1.0 from the current amount of say call it 3.5 (from Barchart).  I noticed it dropped about .5 today from 4.0 to 3.5 with a $2 move in WTI.  If each .5 move is $2 in WTI then it ends up back at $57.50 for a PCPR of 1?  I assume there is variation based on the puts/calls written each day moving forward toward the March expiration that skew that $2 amount?   Not suggesting it is going to make it to 1 but there are huge premiums to be collected in the next 14 days based on the current differences.

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BH

(edited)

update....just saw Barchart update the PCPR to 3.09 based on the $2 move.  Don't pay for subscription so guess the real numbers come later!  So does that equate to a $4 move from here to somewhere in the $51.50 range to get to the 1.0 for the PCPR?

Answer: Not sure of the price target. Interesting. I use the the PCPR to determine direction and as an exit indicator. Not a predictor of price. Let's see how close your calculation is.

Edited by Gary LeBlanc

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AK

(edited)

Gary what do you do now in terms of strategy? If this drops to the 30 or even 20 level . 

Answer: I let it do what it's going to do. This is part of the process. Not sure if you follow the OVX but it's nearing historical levels. This is very important when shorting options. The whole key is to not use margin. I only trade the options. Not the contracts. RBOB usage in the US has gone up the last 3 weeks. RBOB has gone down in price. Eventually ( maybe a year ? ) WTI will get back to its $52-58 range again. Seller of time.

Edited by Gary LeBlanc

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OilProspector

(edited)

Devastation... but 11 Days remain. With CL anything is possible.

EOW 03-06-2020

Screen Shot 2020-03-06 at 3.13.52 PM.jpg

If April contracts expired today I would experience a $42K loss. That represents 8.9% of the value of my account when this current strategy was implemented. I would sell the Apr contracts and immediately buy 2 August contracts at 43 and change. I would have to pay about 25 cents more for August than the sell price of the April contracts. Then I would Sell to Open 2 Aug 54 puts at $14ish each. That gives me 130 days for CV-19 to run its course. Lets say WTI only gets back to 54.00 in August. I will collect $28K from the premium and make another $22K from the appreciation of the contract itself. That's $50K. I will still have 8 contracts. That's what's meaningful. The cycle of 52-58 may have to get ratcheted down a few dollars but now is a buying opportunity. You stepping up ?

Edited by Gary LeBlanc

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OilProspector

(edited)

On 3/6/2020 at 3:18 PM, OilProspector said:

Devastation... but 11 Days remain. With CL anything is possible.

EOW 03-06-2020

Screen Shot 2020-03-06 at 3.13.52 PM.jpg

If April contracts expired today I would experience a $42K loss. That represents 8.9% of the value of my account when this current strategy was implemented. I would sell the Apr contracts and immediately buy 2 August contracts at 43 and change. I would have to pay about 25 cents more for August than the sell price of the April contracts. Then I would Sell to Open 2 Aug 54 puts at $14ish each. That gives me 130 days for CV-19 to run its course. Lets say WTI only gets back to 54.00 in August. I will collect $28K from the premium and make another $22K from the appreciation of the contract itself. That's $50K. I will still have 8 contracts. That's what's meaningful. The cycle of 52-58 may have to get ratcheted down a few dollars but now is a buying opportunity. You stepping up ?

While you have been sitting on the sidelines (and wondering where is this going to stop and reverse) I have collected $110k in 2 weeks without even posting my trades anywhere. Most traders believe me (Gary now resorting to editing/removing user comments and in doing so committing fraud... that shows his true character ~ and your the one that asked me to stop posting my EOD results), but like we have both said in the past... Our methods are vastly different. Granted, I like your "Options on CL" but in the same breath my risk-set abhors the draw-downs you get.

I will say it again... "The market can stay irrational longer than you can stay liquid". Unfortunately, I know this first hand.

Too add: CL can do some crazy stuff and counter to logic. I have a note posted on my monitor that states "Remember: Forces Greater Than You Trading CL (OPEC, etc)". I prefer a higher price in CL as a trader. 1% moves of a higher number make it easier to catch the middle of a trend move.

Best of luck!

Edited by OilProspector

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Black Swan Event.  Your down -$300k

Are you in margin call area?

Truly hope this can bounce back!

Screen Shot 2020-03-08 at 3.58.45 PM.jpg

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Wow... total blood bath... and now Goldman Sachs says they see $20 oil. Nuts! 

Reminds me of the saying "Everything works UNTIL it doesn't"

I do not know at what point your broker (IB) institutes a margin call ~ hopefully you can meet their demands if one and ride this storm out.

Best of luck Gary...

Screen Shot 2020-03-08 at 6.53.21 PM.jpg

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Md

(edited)

Hi Gary, I shut down my exposure to the strategy when CL fell below $48 in two steps. I had taken some profits around the 15th when prices rose, but still exited with a loss. I still believe in the strategy, this episode is the risk you’re being compensated for in selling CL options. Thinking about how to take advantage of higher OVX, repurpose strategy for current environment. In meantime, shorter term trends (shorts) are generating some returns, especially nice once the algo’s turn off due to market volatility, leaving the field to us mere humans...

Answer: If you google " Black Sholes" go to the TradingToday site. Pricing of options include 5 criteria with the Volatility Index being one of the criteria. Volatility indexes spike with sharp downturns in the market. This increase in the volatility greatly increases the price of put premiums that the market maker collects.

Edited by Gary LeBlanc

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Md

(edited)

US is headed into recession, Europe already there, MBS choosing this moment to fight it out with Putin on oil prices. Agreed that crack spreads are telling a different story as you note. We: have you ever applied pcpr to the copper market?

@Marie-christine Pinoul I have only applied PCPR to stocks and WTI. If WTI doesnt get back to $42 by rollover I won't be rolling over the 2 April contracts into 2 Aug contracts. I will have 6 contracts. 2 May 2 June and 2 Julys. If it takes a pandemic for for my strategy to fail so be it. The OVX is the highest it's ever been. It will be a spike; not permanent. The fact that I went further and further out in time with my contracts gives me an opportunity to make it through the carnage. 

Edited by Gary LeBlanc

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BH

(edited)

Hey Gary, so we're in unchartered waters from what I see!  A PCPR at 27+ for the front month and the next couple months not much better.  Buying opportunity?  I was wondering if you have ever experienced this during your options trading experience?  Yes Black Swan event for sure but does it still not remain there is 3 Billion+ available to market makers for Options expiry on this front month contract next Tuesday?  Or a least a push for contract rollover by the end of next week? Thoughts? That's the biggest payday I have seen since following your thread (back to Investing.com). 

Answer: I was long during the Oct 19, 1987 crash. Lost everything. That was because of computer trading getting out of hand. This will probably decrease the number of contracts from 8 down to 6 or at least down to 7. Still have May June and July contracts. The oil market option makers are still in business and that's who's business structure I copy. If WTI gets to $42 before rollover I'll be able to roll over into 2 Aug contracts. If it doesn't get to 42ish I'll have funds to buy only 1 Aug contract giving me 7 total.

Edited by Gary LeBlanc

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rw

(edited)

“On 11 December 2019, Saudi Aramco commenced trading on the Tadawul stock exchange. The shares rose to 35.2 riyals, giving it a market capitalisation of about $1.88 trillion,[11] and surpassed the $2 trillion mark on the second day of trading.[12]”
Oil price on 11/12/19 = $59
Oil price today ca $32

The owners of the company timed the listing pretty well.
All carefully planned no doubt 

Edited by rog1111

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OilProspector

(edited)

I'm guessing these two options contracts (each covered separately) were you... 🍿

 

Screen Shot 2020-03-17 at 10.40.02 AM.jpg

Screen Shot 2020-03-17 at 4.38.15 PM.jpg

Edited by OilProspector

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OilProspector

(edited)

Too make it simple we will just assume that they were both covered for $24.80 ea. 🍿

03-17-2020

Re-ordered the series to match Option w/Future contract(s):

Screen Shot 2020-03-17 at 5.01.10 PM.jpg

Edited by OilProspector

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OilProspector

(edited)

It would not surprise me if we don't hear from Gary for awhile. I'm almost certain he received a margin call... but I could be wrong.

Hubris gets us all at some point in our lives. I know it has me.

 

Edited by OilProspector

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OilProspector

(edited)

April series complete.  For argument sake (since Gary is no longer updating here) I split the final price** on CLJ20 between the High ($27.89) and Low ($19.46) of the day.

Total return for April series:  -$102,540.00.  (Ouch)

**Updated: Had incorrect prices on CLJ20 H/L

Screen Shot 2020-03-21 at 10.45.21 AM.jpg

Edited by OilProspector

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Looking to buy positive cash flowing Gas Station with convenience Store anywhere in USA. Please send me details to Richardkole65@yahoo.com 

Thank you

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rw

(edited)

I got hammered, but still liquid. The short-dated : long-dated CL futures % discount is huge, that % must narrow going forwards,...

 

Edited by rog1111

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Long 10 CLK20 @22.01 average

Short 7 CLZ20 @30.72 average

May contracts expire April 23rd

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Gary I am concern about you . A lot of people took loss . Say something to let people know you ok if you can . 

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On 3/23/2020 at 5:19 PM, rog1111 said:

Long 10 CLK20 @22.01 average

Short 7 CLZ20 @30.72 average

May contracts expire April 23rd

Sorry, should be April 21st

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OilProspector

(edited)

19 hours ago, AKA said:

Gary I am concern about you . A lot of people took loss . Say something to let people know you ok if you can . 

Like I said "It would not surprise me if we don't hear from Gary for awhile. I'm almost certain he received a margin call... but I could be wrong."...

He may be out looking for a job ~ something he ridiculed everyone else that had to have a side job (Hell, even I had to have a side job until I truly learned how to make money trading). 

Like I tell everyone that asks... backtest backtest backtest ~ find MAE and double it. The worst will happen when you least expect it. Unfortunately, I know first hand.

Take note... If he is still around odds are this message will be deleted.

Matthew 23:12

Edited by OilProspector

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Looks like "Diary of a WTI options market maker" has died (and all the sycophants have gone into hiding by embarrassment and not remaining skeptical ~ as I posted once before (Gary deleted) "There is NO Free Lunch!").

I will keep making periodic updates to the tables I post for myself/those that want the edification.

Trade On!

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OilProspector

(edited)

On 3/25/2020 at 3:21 AM, rog1111 said:

Sorry, should be April 21st

rog1111... following along ~ if you would, please give updates when made.

Screen Shot 2020-03-27 at 5.10.28 PM.jpg

Edited by OilProspector

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