The profit of this strategy is usually from the short‐volatility, mean‐reverting strategy, while the long straddle merely provides a hedge against extreme movements and is typically a drag on profits. At the same time, we will long a straddle or strangle as a hedge. We run a mean‐reversion strategy on an underlying, taking a long position in the underlying when its price moves lower or a short position when it moves higher. Strategy 2: Gamma Scalping Crude Oil Futures While the P&L in points is computed here just by taking the differences between entry and exit prices (and multiplying that by −1 since this is a short position), we should remember that P&L in dollars is one thousand (1,000) times the points difference. As for the buy cover exit, we use a market order to buy at the ask prices. We have a choice of whether to enter into the short straddle position at the bid (using market orders), at the ask (using a limit order), or at midprice (also using a limit order).

Also, we cannot expect there is a new quote update at exactly the entry or exit time-we will take the quotes with the most recent time stamp just before entry or exit time as our execution prices. We assume that quotes with the same time stamp are arranged in chronological order in the file thus, we take only the last quote. After finding the underlying future's midprice and thus the desired options strike price, we go on to retrieve the BBO (best bid offer) quotes data for the call and put with this strike price. We have treated those holiday weeks when the releases were on Thursdays at 11:00 a.m. Hence, we need to first retrieve the quotes data for the underlying CL futures contracts and determine the midprice at 9:00 a.m.

The data are from .Īs a straddle consists of one pair of an ATM put and call, we find out what strike price is ATM at the moment of the trade entry. Furthermore, there is no guarantee that this choice of tenor produces the optimal returns. The option expiration date is approximate only, and the first trading date of J12 and the last trading date of J13 are irregular due to the limitation of our data. Note that we trade only options on the front (nearest to expiration) futures contract, but at the same time we require the option to have a tenor (time‐to‐maturity) of about two weeks. However, its options (symbol LO) expire three (3) business days ahead. For example, the February 2015 contract (denoted as CLG15) will cease trading on or around January 22, 2015. Short a straddle on the day after the release date of a “US Weekly Petroleum Status Report,” and buy a cover just before the next release.Ĭrude oil futures (symbol CL) on CME Globex expire around the 22th of every month ahead of the delivery month. Strategy 1: Shorting Crude Oil Futures Option Straddle

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