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Friday, June 20th

“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.”

-Sun Tzu

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Markets Today

🌏 Asia-Pacific: Mixed

🇪🇺 Europe: Up

🇺🇸 United States: Mixed

🛢️ Oil: Down

⚡Crypto: Mixed

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Major Market Events 

• Fed’s Waller: Rate cuts should be considered by July. Markets are still skeptical.

• SoftBank reportedly looking to launch a trillion-dollar AI and robotics industrial complex. In Arizona – go US jobs!

• Meta unveils its Oakley smart glasses. Big tech insiders tell us that smart glasses are going to be the next big thing.

🤔 My Thoughts

War with Iran?

Hopefully not. But Middle East conflict can have a big impact on oil prices and we’ve put together a trade idea that can profit on a big move in either direction.

So if there is war and oil spikes you can win, and if there is a stable peace agreement and oil falls – you can also win.

Obviously we’re hoping for the latter but you have to play the ball where it lies.

So the idea is a “strangle trade” that can profit either direction.

Strangle Trade Setup for Oil

• Choose the Underlying: Use crude oil futures (CL) or an ETF like USO (United States Oil Fund). For simplicity, let’s assume USO, trading around $80 per share (hypothetical, based on recent oil price ranges of $70–$90 per barrel).
• Select Expiration: Choose an expiration 1–3 months out (e.g., September 2025) to balance time decay and cost. Longer expirations give more time for a spike or plummet but are pricier.
• Buy Out-of-the-Money (OTM) Call and Put:
  • Call Option: Buy a call with a strike price above the current price, e.g., $85 strike (5–10% above $80). Premium might be ~$2.00/share ($200 per contract).
  • Put Option: Buy a put with a strike price below the current price, e.g., $75 strike (5–10% below $80). Premium might be ~$1.80/share ($180 per contract).
  • Total cost: ~$380 per strangle (100 shares per contract).
• Profit Scenarios:
  • Price Spikes: If USO surges to $95, the $85 call is $10 in-the-money ($1,000 value), minus premiums ($380) = ~$620 profit. The put expires worthless.
  • Price Plummets: If USO drops to $65, the $75 put is $10 in-the-money ($1,000 value), minus premiums ($380) = ~$620 profit. The call expires worthless.
  • Max Loss: Limited to premiums paid ($380) if USO stays between $75 and $85 at expiration.
• Breakeven Points:
  • Upper breakeven: Call strike + total premiums = $85 + $3.80 = $88.80.
  • Lower breakeven: Put strike – total premiums = $75 – $3.80 = $71.20.
  • Profit requires USO to move beyond these levels by expiration.
• Risk Management:
  • Set a max loss threshold (e.g., 50% of premiums, $190) and exit if the trade sours.

Considerations

• Volatility: Strangles benefit from high implied volatility (IV). Check IV using options chains on platforms like Thinkorswim or Interactive Brokers. Oil’s IV is often elevated due to geopolitical risks.
• Liquidity: Ensure strikes have tight bid-ask spreads to minimize slippage.
• Margin: Futures options (CL) may require higher capital and margin accounts. USO is more accessible for retail traders.
• Timing: Enter before expected volatility (e.g., OPEC announcements) but avoid overpaying for high IV.

Example (Hypothetical)

• USO at $80.
• Buy 1 Sep 2025 $85 call for $2.00, 1 Sep 2025 $75 put for $1.80.
• Cost: $380. Max loss: $380. Unlimited upside if oil spikes/plummets significantly.

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To Better Trading,

Alex Reid