Beware of the bull traps!, CCL as an example

[Overnight]

So, if I buy 1 CL at $20.00 and the price goes to zero then I will lose $20,000? But if the price goes back to $60, then I'll have $40k profit?

No, if you buy 1 CL at 20 and the price goes to zero, you will be at 20K unrealized loss. You only lose when you close your position. If price goes back to 60 bux, and you close at that price, you will make 40K.

The real trick is timing the expiration of your futures contract positions.

 

[tsfx]

So, if I buy 1 CL at $20.00 and the price goes to zero then I will lose $20,000? But if the price goes back to $60, then I'll have $40k profit?

not really, if prices stay flat you keep on losing money as well. Oil is in strong contango which means that when you are rolling the contract every month you are getting a higher price each time and that price can again drop back to 20. Example: you own CL now at price of 20. Lets say price stays at 20 until expiration. Then you need to roll to new contract which has a price of 23. Then you wait another month and that price might as well drop to 20. And so on and on and on. So you keep on losing that 3k before you see any significant movement to the upside.

That's exactly what is happening right now which keeps the prices flat. You think you are the only one that "figured out" the asymmetric buying opportunity here ? Prices will never go where the retail wants it, who's gonna give you that money ??

 

[Amatrue]

Then you need to roll to new contract which has a price of 23

why don't the contracts align in price as the expiration gets close and is contract expiration solely for the purpose of hedging?

sorry for the newbie questions

 

[tsfx]

why don't the contracts align in price as the expiration gets close and is contract expiration solely for the purpose of hedging?

sorry for the newbie questions

Because different months have difference prices for crude is the simple answer.

 

[NY_HOOD]

Dozu888 is swimming in a death pool now. Thats why i said beware of the BULL TRAP !!!!

 

[dentist2725]

What do people think of buying puts in this environment? Aren't wild swings upward not a return of a bull market but more of an indicator of a bear market? After a particularly strong move upward for a day or two, I have been buying ATM puts 60-90 days out to reduce the effects of time decay. Sure they are expensive but if the market goes down, they get more expensive and you can sell them for more. I have had recent success doing this with CCL and SBUX, selling the puts a week or so after buying them. I usually don't like buying options but in this environment, I do like buying puts. I am looking for good stocks to do this with. Does anyone want to share if they have used this strategy successfully? If the puts reach half the value I bought them for, I sell them and take the loss. So far, with this bear market, I have not had to do that.

 

[cafeole]

Just pay close attention to volatility. As long as the volatility stays high you are buying and selling the same thing. If volatility drops, then so does the price of the put.

 

[dentist2725]

Yes. I agree. I like doing this when the VIX is high. It requires a belief that the VIX will remain high for a while.

 

[dentist2725]

Does anyone want to share opinions of what stocks they expect to fall further in the next 3 months? I made some money buying puts on CCL and then selling them but at this point I don't have confidence it will fall further.

 

[zghorner]

Does anyone want to share opinions of what stocks they expect to fall further in the next 3 months? I made some money buying puts on CCL and then selling them but at this point I don't have confidence it will fall further.

O&G companies IMO are a good short term play. Puts on: HAL, XOM, CVX, CLR, XEC. Some are fairly low on option volume so be careful. Also I should add that around 80% of my trades are losers so you should inverse me and buy calls instead.