May 21 – choppin on the edge, and then falling off

Oil RAGES on $132/ barrel. Is this really good for the anyone? I am looking for a number of strategies to play this market. We approach the 3-day weekend. There have been many gains over the past 7 weeks. I am thinking that the big market players may not want to go into the weekend long (bearish), and they will be happy to take some off the table. I don’t see a pure downward move. Also, there is lots of push into the biggest driving weekend of the summer. What happens if we see demand down due to less driving? Less destination vacation? Who benefits, who looses? Perhaps a buy the rumor, sell the news reaction in the oil markets. Not to mention CNBC blathering on about Oil, Oil, Oil…
This could be good. I was trying to figure out how to conservatively play oil short.
This is what I have come up with. With all this volatility
Here is a thought on a drop by week’s end (assumptions and facts):
1) Long oil players will want to lock in profits prior to a long weekend.
2) Oil (commodity) is up 4 days in a row after a gap up
I am looking @ an option play that will take advantage of time decay, and a slight Vol skew using long July and June Quarterly options. There is only a 1 week difference between June and June Quarterlies. The play I am looking to offers breakevens between 84 and 94.5 on the XLE.
3) The total risk is approx.70 per spread. Total Reward to risk is 2.5:1
4) I am using a center strike which is placed at the top of the gap up, bullish breakout bar.
5) Using a high volume gap up strategy, using twice the size of the gap up bar takes the XLE to 93. (within Breakevens)
6) Stops near breakouts to the upside, and below the bottom of the breakout bar (87)
7) I can also make adjustments with butterflies or additional calendars (perhaps a 92 or 93). Using a 93, extends the breakeven to 97.
XLE chart with breakevens.

The problem with this trade is that I was trying to get this off giving up.08 per spread, and nothing filled. I will keep trying, but the liquidity in the June Quarterly options was not too good today.
I have been making some entries and exits, but I am not finding exception ones yet.
LOW – Exit the remainder of my Jun/Jul 25p for .35. It was a nice 60% gainer. I don’t like being long this sector. I don’t see an upside catalyst. I think we had it with the stimulus checks, but now I believe the assumption is the check is being sent to OPEC a tankful at a time.
GS – Bought 4 units of June/July 185p for 2.15 and 2.05. There is a nice positive 2% IV skew. I have a idea that GS is making a frickin’ fortune in the energy trade. I wanted some quality Theta decay in preparing for the 3 day weekend. Overall volatility, is low for GS, and this trade benefits from an overall rise in Vol. And the GS breakevens on this trade are 173 and 198. I also like the way the 50 day (blue) and 200 day (red) breakevens frame this trade.
GS daily with the trades breakevens.

MFE – added June/Sept 35p for 1.50. I now have a 1.5% allocation of this trade with an ave price of 1.48.
GE – Exited half of a position I opened yesterday on a downward trend break. Sept/July 27.5/32 for 3.40. .33 loss.
PM – Sold 2 units of 55c calendar for .15 and .17. Very nice. Sold 2unit of 50c for .15. Interesting. The person was coming after them 8 spreads at a time. It was nice to bank some profit on this trade. Down to 317 contracts from 750.
In the afternoon the market broke in response to the fed minutes. The XLE broke too, however, I haven’t yet got my trades off.
QQQQ – It is official, I am a shitty directional scalper. Fortunately, I am just playing with 1 lots, and I am one of the best calendar spread traders in the world.
The portfolio was up 3.2% on the day.
Deltas are -230 (selling LOW decreased, buying GS increased, buying MFE decreased
Gamma – 396
Theta -95 (picked up some Theta in GS, gave some back by selling LOW and PM)
Vega 739 (my portfolio rose on and increase in Volatility today.
At the close, I am 32% invested in my acct. And I sit in 68% cash
Some highlights – were UST spread widened, TXN opened, exited LOW before it collapsed, lightened some PM exposure, entered GS, IWM opened, added MFE, and IMA broke my way. And I traded reasonably well. I wasn’t decisive on directional trades, I need a trading partner who is. I would deliver even better results.
Lowlights – GE sucked, WMT sucked, AIG sucks!