Take Advantage of the implied volatility skew.
2 June 2020
OIL POST NUMBER TWO
– – – Strategy (using ICE Brent Options):
1. Sell 1x September 30 Put (expiry: 28 July 2020); and
2. Buy 1x December 55 Call (expiry: 27 October 2020),
Net premium = Zero (please…try to work it)
(Note: there is no such thing as a “zero-cost strategy”. That term is a misnomer as having a naked option means having quite a bit of potential cost. The correct label should be “zero-premium” structure.)
Further information (approximate numbers):
September 30 Put: based off a futures price of 39.31 = 11 delta/6.2 theta/2.9 vega.
December 55 Call: based off a futures price of 40.03 = 13 delta/2.2 theta/5.5 vega.
The above is both a Long Oil Price and Long Implied Volatility position (not intuitive in the current market). However, the implied volatility price of the shorter dated put (more than 20 percentage points higher) compensates well for the purchase of the longer dated option so much so that the position exhibits positive time decay almost three times the longer dated position.
Next post: long-term positioning and goals.