Ah my new love, the short straddle. I’ve become very fond of this strategy since I started playing with it a few months ago. This will be my second real straddle trade although I’ve done several paper ones.
I’ve been watching oil through the lens of the USO for a while. It’s become very predicatable and a not as volitle as it’s 65% IV would suggest. It’s pretty range bound between $25-33 and I think will stay that way for a while. It’ still in a downward trend, mostly because I think because people think oil is broken. I don’t think that but as long as others do the IV will stay high. That gives me a chance to feast on that juicy premium.
The other reason I like this trade is I’m only risking 1.80 to make a potential 3.13 and I REALLY like that risk/reward. My break evens are 23.60 and 30.19 which gives it some room to run. I also think there is high risk that things could bolt up or down without much cause so I put on some wings for protection by buying the 22 put and the 32 call. That pulls my BEPs in on each side about 1.50 and reduces my credit but it’s worth it in this case. After all, I’m still learning this trade and I’m learning the USO so these wings are more like training wheels. Also, my buying power reduction is half as much than it would be without them and I like that too.
The trade: Credit 3.13
Sell Open: USO Mar 27 call and put credit 4.43
Buy open: Mar 32 call debit .60
Buy open: Mar 22 put debit .70
Sean's Trading Journal 