Sell April Crude Oil Strangles
After a near free-fall in early January, crude oil is now on an upward tear. Typically, a market that sees this type of whipsaw consolidates as traders regroup. We suspect that could be in the cards in the coming week or two. Consequently, we like the idea of selling crude oil strangles using the April $103 call and the $89 put. This strangle should bring in about $1.00 in premium, or $1,000. This is the maximum profit at expiration before considering transaction costs.
The risk is theoretically unlimited beyond the strike prices $103 and $89 (ignoring the premium collected). However, we haven't seen crude trade beyond these levels in months. Specifically, crude hasn't been above $103 since October or below $89 since May. These options have 55 days to expiration, but if we are right about a lull it is possible that we get an opportunity to buy them back at a profit within a few weeks.
Let me know if you would like us to execute this trade for you.
As always, there is unlimited risk in option selling.
