My First Foray into Futures
[Update: January 23rd, 2020] This post was first written about a month ago (Dec 2019). This did not go well, but I learned few $1300 lessons (or 3 $433 lessons).
Whoops, lost $1300 trading oil futures. Crawling my way back to even. 🤬 /CLH0— The Money Vikings (@moneyvikings) January 23, 2020
- Size my trades appropriately and understand how much risk I’m actually taking – futures offer a lot of leverage, and trading /CL is like trading 4900 shares of USO at a time. Perhaps start with some corn, or micro futures that are often 1 tenth the size of the main underlying.
- Do not overtrade or overreact when there are geopolitical happenings
- Don’t try to get fancy and change one type of trade (an iron condor) into another type of trade (bullish vertical call-spread). It changes the entire risk profile of the trade and can lead to losing more than you thought you could when initially entering the trade.
- Higher leverage than regular ETFs such as USO, which simulates the price of oil, but has some “drag”. USO currently is fairly representative of /CL, however that wasn’t the case a few months ago where /CL would go one direction and USO might go the other.
- When you look at CNBC, Barrons, or WSJ, and they report the price of oil, you don’t have do convert from the futures price to an ETF equivalent such as USO.
- I entered the trade having a neutral assumption. I already understood how to place a neutral trade using an iron condor on a stock or ETF underlying, so I applied this knowledge to futures, fully knowing my max risk and profit targets before ever placing the trade. (As well as the probability of success). The IVR of /CL at the time of the trade was 35.6% and today it is 10.1%, so that’s good when using a premium selling strategy.
- I plan on closing out the contract before expiration so I won’t have to accept delivery of 1000 barrels of oil. (My home is too small for that, and what would my wife say??!!).
- The only new thing I needed to learn was the min tick sizes and their value. In the case of /CL, .001 is one tick, and it is worth 10$.
Here’s How My Trade is Going
- 12/2 I entered an iron condor for a .50 tick credit, making my max profit $500, and my max loss $1000.
- 12/16 the price of oil rose enough to make me want to roll the untested side up a few dollars, collecting another .06 in credit (ticks converted to dollars here was 60$).
- 12/18 the price continued to rise, so I rolled up again, collecting another .10 credit. (100$).
- 12/20 the price of /CL started to come down a bit, and I feel fairly good about where I stand, with about 1 week until 21 DTE (days to expiration). I’m hoping to collect around 50% (or less) of the potential $660. Will continue to update this post as things continue.