FxWirePro: Glimpse over vigilant of crude inventories and use credit call spreads to arrest WTI short term bearish and mid-term bullish risks

Crude stocks drew for a second straight week, falling by 1.0 Mb (vs. -1.4 Mb expected). Cushing stocks fell, too, by 0.8 Mb (vs. +0.2 Mb expected). Refinery runs continued to ramp up quickly, and 4w av. runs are 395 kb/d above last year’s level.

This week's gain of 241 kb/d took runs to a very high 16.94 Mb/d. Runs have now risen by roughly 1.5 Mb/d in the last five weeks, and are already at last summer's peak.

On the supply side, imports were 68 kb/d lower at 7.81 Mb/d. Production was up 17 kb/d, entirely due to shale (lower 48 onshore). Stocks remained far above 5y highs.

WTI crude prices have been tumbling from the highs of 53.74 levels, now slid below 21EMAs and $51 a barrel to the current 50.86 levels (while articulating), but from major trend has been in consolidation phase (rose from the lows of $26.08 to the current $50.86 levels.

Thus, it is advisable to initiate Diagonal Credit Call Spread (DCCS) in order to tackle both short term abrupt dips and major uptrend.

Execution: Keeping the both fundamental and technical factors in mind, it is advisable to go long in 1M (1%) OTM 0.36 delta call while writing 1W (1%) ITM call with positive theta and delta closer to zero (both sides use European style options), this credit call spread option trading strategy is recommended when the underlying spot FX price is anticipated to drop moderately in the near term and spikes up in long term.

The return is limited by ITM shorts. No matter how far the market moves below that point, the profit would be the maximum to the extent of initial premiums received.