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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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FWIW, I’d sell the puts. You’ve probably made a bit, and it isn’t your core approach. 

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True, but with a $250,000,000 imbalance in the Feb options market and RBOB showing signs of weakness I'll take the risk that WTI heads to under $60.00 by week's end.RBOB currently struggling with $1.73 and WTI 62.72

Edited by Gary LeBlanc

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Gary long term no one is as good as you , eventually it come down to earth but bro how do you trade extraordinary time like now . Wish you luck  . Those 6 puts ouch ! How do you hold on to those as time , this time is against you . OilP are you from investing ? If so who are you . I am one of the original wolf packs of Gary 

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That was quick. May not be over. It helps not to use leverage. I am not allowed to use leverage since I short options against my long positions. I could use leverage when I short contracts, but I don't. I only short as many contracts as I had long the last cycle which was 8. I am currently short 6 Mar contracts at avg 57.98. I am long 2 Feb contracts with Feb 58 calls shorted against them at $3.00. Volatility ( OVX ) has increased 40% over the last 2 weeks. EIA reports today and I'm expecting another build in RBOB. 

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I didn't make any trades if that's what you mean. This is the way I see it. Brent/OPEC are at risk. Not WTI. No interruption in the supply of WTI. If you were a CEO of an oil company and had customers in the Middle East area would you incur the risk and send a $50,000,000 cargo into a heightened military area of the world ? The Brent/WTI spread is starting to widen.

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If..... CL retraces to 60.74 I will short 1 car ~ not sure if G or H contract.

 

Edited by OilProspector

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I'll more than likely be short 8 March contracts. My current average on 6 short March contracts is $57.98. My Feb 58 short-call position expires in 7 days. I have a Buy to Close at 75 cents which is 25% of the $3.00 premium I received for them. Once I close the Feb contracts I will roll those over into my 6 March position. With the appreciation from the 8 short March position and the Feb 63 puts at $1.00 I'll be able to purchase 10 contracts with no leverage. I will start by buying 2 July contracts when I can short 54 puts so that my purchase price minus the premium collected shorting the July 54 puts equals $50.00. When that criteria is fulfilled for the June contracts I will buy 2 June contracts and Sell to Open 2 June 54 puts so that it equals $50.00. So on and so forth until I have 2 each March-July contracts all with 54 puts shorted against them.

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Just to give you an idea of what trading the (sine) waves (10 cars ES) gives... just an average week... all it takes is filtering out the noise... not always easy from an "emotional" point of view ~ follow the system and reap the rewards. I am now slowly applying the same system to CL. Work in progress ~ can get some wild swings on breaking news.

ES Trades.JPG

Edited by OilProspector

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59 minutes ago, OilProspector said:

If..... CL retraces to 60.74 I will short 1 car ~ not sure if G or H contract.

 

Had a 20t retracement where I would normally take a short but because it was on a wide bar I like to see it retrace back to 38.2% of the wide bar (60.75) ~ will see what overnight action gives. Sell limit order placed @ 60.74.

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20 hours ago, OilProspector said:

Had a 20t retracement where I would normally take a short but because it was on a wide bar I like to see it retrace back to 38.2% of the wide bar (60.75) ~ will see what overnight action gives. Sell limit order placed @ 60.74.

Still a bystander... darn.

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Jan 9 2020

 Still short 6 March contracts at avg of 57.98 and long 5 WTI 63 puts at $1.00. Placed stop for the 63 puts at $3.00. They are currently $4.31. Also long 2 Feb contracts with Feb 58 calls shorted against them at $3.00.They are currently $1.42.  Target: 75 cents.  WTI currently $58.75. RBOB has had a build in inventory from the the first week of the year to the second week of the year every year over the last ten years. This sell-off continues in RBOB through next week.

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Today's update... ES plus a few CL scalps...

To add... it was a tough day... more trades than I care to make.

 

ES Update.JPG

Edited by OilProspector
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Jan 9

Sold 10k shares of DWT @ 3.77, profit @ $4.5k. I’ll go short 1-2 CL contracts most likely early next week — waiting for futures account to be back online, had to move funds around for year end.

Edited by marie elena
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Jan 12 2020

  WTI closed at $59.12 on Friday. The current Net Purchase Price on my 2 Feb contracts is $49.83. The 2 Feb 58 calls I Sold to Open at $3.00 are now at 1.38. The target is 75 cents. If the target hits I will have made $3.00 - .75 = $2.25 that gets deducted from the current $49.83 Net Purchase Price which would be $47.58. If the target doesn't hit my Net Sell Price will be $61.00 and my Net Purchase Price will be 49.83 giving me a profit of $11,170/contract. If the target does hit I will place an order to Sell to Open 2 Feb 58 calls at $1.50. Options expire on the 15th. 

   Also long 5 Feb 63 puts at $1.00. They closed Friday at $4.00. I had a stop at $3.00 but moved that up to $3.50 for all 5. Short 6 March contracts at avg of 57.98. They closed at 58.99 on Friday. 

   When the options expire I will go ahead and sell the 2 Feb contracts if they haven't already been taken from me at $58.00. Then short 2 more March contracts giving me 8 total. My next purchase of WTI will be in the August month when the price of the Aug 54 put subtracted from the price of the Aug contract equals $50.00. For example the Aug contract closed at $57.47 and the Aug 54 put closed at $3.07. 57.47 - 3.07 = 54.40. Probably if it gets to 55ish the put will be around $5.00. We'll see. 

Edited by Gary LeBlanc

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Jan 13 2020

  WTI hit $58.20 in early morning to cause my " Buy to Close" order to execute at 75 cents for the 2 Feb 58 calls that were "Sold to Open" at $3.00. This completed transaction lowered my Net Purchase Price for the 2 Feb contracts to $47.58. This allows me to sell my 2 Feb contracts and short 2 March contracts and that is what I've done. I sold the 2 Feb contracts at $58.25 and shorted 2 March contracts also at $58.25 giving me an average of $58.05 on 8 short March contracts. The current price for the March contract is $58.35.

  Profit on the Feb Options strategy is 2,000 × ( 58.25 - 47.58 ) = $21,340. Current position is short 8 March contracts at $58.05. 

  Raised the stop on 5 Feb 63 puts to $4.00 locking in $15,000 of profit on 5,000 in capital. Last trade went through at 4.65. If WTI dips below $58.00 I will raise the stop to 4.50, but WTI seems to be heading higher. 

   Raised the stop to $4.50 as it looks like WTI will close around $58.05. Short 8 March contracts at $58.05 and long 5 Feb 63 puts at $1.00. Both positions did quite well today. With a stop of $4.50 on my 5 Feb 63 puts I locked in $17,500 profit. Will move the stop to $5.00 should WTI get to $57.50.

Edited by Gary LeBlanc
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Jan 14 2020

 5 long WTI Feb 63 puts at $1.00 were sold this morning at $4.50. Profit: $17,500. Current position in WTI is 8 short March contracts at 58.05.

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7 hours ago, Gary LeBlanc said:

Jan 14 2020

 5 long WTI Feb 63 puts at $1.00 were sold this morning at $4.50. Profit: $17,500. Current position in WTI is 8 short March contracts at 58.05.

Nice!

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Good luck Marie. Do you use a target to establish a sale price ? My 8 short March contracts at $58.05 are starting to do well. For me it's just a waiting period. 

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$OVX.X heading down... high of 37.14 just a few days ago to now 27.30 ~ short term bullish sign?

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Jan 16 2020

  I've watched the OVX for over a year now and the best I can deduce is when the OVX is high that is the time to be shorting options. Could be puts or it could be calls. As far as how it relates to the price of WTI I haven't gotten any clear conclusion, but it appears if the OVX is down big WTI is usually up big. 

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