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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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3 minutes ago, Gary LeBlanc said:

Do you have a target for Brent or do you use the PCPR to indicate that ? Plenty of time left.

tp 62

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5 минут назад капитан Дж. Флинт сказал:

TP 62 или SL

I try to understand your trading system ... it is very interesting

Edited by Captain J. Flint

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So many new bulls asking for tomorrow's price. All will get crushed. Good luck. My target is in the 53 range for WTI.

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3 minutes ago, Gary LeBlanc said:

So many new bulls asking for tomorrow's price. All will get crushed. Good luck. My target is in the 53 range for WTI.

thanks...

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Gary good morning...

solve a couple of questions...

when do you rate pcpr wti  do you take correlation tools close...eg...brent...rbob...and others?

whether to do it?

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I use RBOB the most out of those since that's half the production from WTI. I also use refinery inputs quite a lot. I also use just a simple price of gasoline at the pump. I pit a Shell station against an Exxon station that are on corners of a busy intersection. The Exxon station has 20 pumps and a large selection of food and liquor. The Shell station has only 8 pumps and a limited amount of "goodies". As a result the Exxon station goes through much more gasoline and can be more price competitive than Shell as gasoline prices drop. Sometimes the gap can get to 15 cents or so around a holiday. I'll drive by and see maybe 16 vehicles filling up at Exxon and no one is at the Shell station. Exxon has to purchase gasoline much more frequently than the Shell so as their costs go down Exxon can pass this savings onto their customers and rhe Shell station business really dries up. Only when they repurchase gas at a lower price do they lower their price at the pump. Eventually the price at both stations will bottom at the same price. From tracking RBOB I know when the price is going up. Eventually the price Exxon has to pay for fuel is higher than what Shell paid since Shell may have bought 2 weeks ago and still has plenty. Exxon won't raise their price at the pump. They will accept a lower profit margin on fuel to be able to keep customers going inside and spending money on high margin "goodies". Eventually Shell has to buy at a higher price and charging a higher price. Right now price at the pump is on the high side. Not to say it can't or hasn't been higher, but seeing the refiners cutting gasoline production by 200 kbd last week tells me prices are headed lower. 

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22 minutes ago, Gary LeBlanc said:

I use RBOB the most out of those since that's half the production from WTI. I also use refinery inputs quite a lot. I also use just a simple price of gasoline at the pump. I pit a Shell station against an Exxon station that are on corners of a busy intersection. The Exxon station has 20 pumps and a large selection of food and liquor. The Shell station has only 8 pumps and a limited amount of "goodies". As a result the Exxon station goes through much more gasoline and can be more price competitive than Shell as gasoline prices drop. Sometimes the gap can get to 15 cents or so around a holiday. I'll drive by and see maybe 16 vehicles filling up at Exxon and no one is at the Shell station. Exxon has to purchase gasoline much more frequently than the Shell so as their costs go down Exxon can pass this savings onto their customers and rhe Shell station business really dries up. Only when they repurchase gas at a lower price do they lower their price at the pump. Eventually the price at both stations will bottom at the same price. From tracking RBOB I know when the price is going up. Eventually the price Exxon has to pay for fuel is higher than what Shell paid since Shell may have bought 2 weeks ago and still has plenty. Exxon won't raise their price at the pump. They will accept a lower profit margin on fuel to be able to keep customers going inside and spending money on high margin "goodies". Eventually Shell has to buy at a higher price and charging a higher price. Right now price at the pump is on the high side. Not to say it can't or hasn't been higher, but seeing the refiners cutting gasoline production by 200 kbd last week tells me prices are headed lower. 

thanks interesting observation...

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Gary hi, what do you think, will mm premium be taken in S&P 500 E-Mini Dec '19 (ESZ19) .. 8 days left...  ???

Put Premium Total$2,081,290.00
Call Premium Total$8,262,397.50

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2 minutes ago, Captain J. Flint said:

Gary hi, what do you think, will mm premium be taken in S&P 500 E-Mini Dec '19 (ESZ19) .. 8 days left...  ???

Put Premium Total$2,081,290.00
Call Premium Total$8,262,397.50

can cancel the deal on the weekend?😍

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Gary,

Your blog has piqued my interest.  I have not yet become an oil trader but am very interested in learning to apply my Elliott Wave skills to options trading.  I started learning EW in Jan 2018 after I fortuitously sold all positions before the 10% + market decline.  Using EW principles,  I managed to buy positions in Mar 2018 & sell in Sep right before the Oct 2018 decline.  I made the mistake of letting the analyses of EW “experts” in Jan & Feb 2019 cloud my judgment and as a result I have missed profit opportunities in the broader markets since.  Nonetheless, I have found that my 2 years of learning and applying Elliott Wave has dramatically improved my markets & equities forecasting accuracy and I want to learn options trading.  A recent example;  Two weeks ago I forecast the bottom for AM @ $4.34 - $4.42, then revised down to $4.29. It subsequently bottomed @ $4.26.  I did similarly with EPD & WES.  

 I attempted to learn options from the OIC Educational offering but it was too much info to digest while my mind was already numbed from 2 years of learning to ID & count market movement waves & apply fibonacci to forecast turns.  Indeed it may still be too much, but I am curious if you can suggest an options learning platform that is concise and effective at teaching so I can incorporate options trading into my portfolio strategies.  
 

Thanks for any response,

Richy

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I went to college and learned about options in the Masters degree program. I would advise you to only sell covered calls. If you decide to go long options you will be going directly against me and my kind. I have 35 years experience trading options and I'm considered to be the "kid" in my circle of co-conspirators. Just don't do it. 

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Dec 13

To update my pathetic short position in RIG I covered 3,500 shares of RIG at $6.05 this morning and repositioned 3,500 shares short at $6.15. Currently have a stop loss at $6.25 for this position. Also still short 11,500 at $4.80. WTI hit above $60 today but has since pulled  to 59.44. When RIG goes under $6.00 I will lower my stop loss to 6.20.

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Dec 16 

Today is options expiration. Currently short 2 Jan 58 calls at $1.25. As of now the 2 Jan contracts are trading at $60.00 and the contracts will get called away at $58.00 netting a Net Sale Price of $58.00 + 1.25 or 59.25. If that's the case I will be rolling the position into 2 more short March contracts giving me a total of 6 short March contracts.

 

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1 hour ago, Gary LeBlanc said:

Dec 16 

Today is options expiration. Currently short 2 Jan 58 calls at $1.25. As of now the 2 Jan contracts are trading at $60.00 and the contracts will get called away at $58.00 netting a Net Sale Price of $58.00 + 1.25 or 59.25. If that's the case I will be rolling the position into 2 more short March contracts giving me a total of 6 short March contracts.

 

Maybe I haven't had enough coffee yet but for some reason the numbers above look incorrect... what was the purchase of the 2 Jan contracts?

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3 minutes ago, OilProspector said:

Maybe I haven't had enough coffee yet but for some reason the numbers above look incorrect... what was the purchase of the 2 Jan contracts?

Found it: $54.86 ~ now I am up to speed.

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The contracts were originally purchased for $54.86. Option trades that are already closed get deducted from $54.86 giving me a Net Purchase Price of $50.15. Many traders gloss over this. Not sure why. Maybe they're fixated on the contracts from trading contracts from a retail perspective. Looks like my Net Profit will be $59.25 - 50.15 = $9,100 per contract. Will be rolling over into 2 short March contracts to go with my other 4.

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Dec 17

  Jan contracts ot called away at $58.00 as anticipated collecting the $1.25 premium in the process giving me a Net Sale Price of $59.25. Net Purchase Price was $50.15. Net Profit is $9,100 per contract ir $18,200.

  Shorted 2 March contracts at $60.44 giving me a total of 6 short March contracts at avg of $57.98. Shorted 3,500 shares of RIG at $6.15. Stop loss 6.35. Still short 11,500 shares at 4.80. Long 3,000 shares of DWT at 5.30. I dare not peek. Long 2 Feb contracts at Net Purchase Price of $49.83. Short 2 Feb 58 calls at $3.00.

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