Is A Big Move In Oil Prices Due?

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In options trading, a straddle is literally a sit-on-the-fence strategy. By purchasing a put and a call at the same strike (price of underlying commodity) for the same time period, an investor isn’t making a conventional directional bet; rather the investor is looking for a big move either up or down. The rub is that the big move must be greater than the sum of the two option premia or the bet goes south. But that is in the nature of the trade.

From a fundamental industry perspective (Conflicting News Keeps Oil Prices Down to a more specifically trading focus (Are Oil Markets Becoming Untradeable?) confusion has reigned supreme in the crude oil markets of late. WTI is down about 12 percent for the month of June and is set for its longest run of weekly declines since 2015. In addition, crude has been displaying considerable price volatility on a day-by-day basis, largely to the downside. So would anybody be putting on a straddle in the WTI market today? Let’s assess the situation…

 

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