FxWirePro: WTI bears resume sliding back in channel in minor trend, bulls check support at ascending triangle baseline – Calendar straddles for both speculation and hedging

Last week’s crude price upswings have been restrained at the stiff resistance of $50.50 levels.

Ever since the interim bearish swings in consolidation phase are activated to slide back into the earlier sloping channel. For now, the selling sentiments are coupled by both leading oscillators.

As stated in our previous post, WTI crude price has been drifting through ascending triangle support (on the weekly chart) showing strength in price spikes after testing support at ascending triangle baseline. The current prices on this time frame have gone above 21-EMAs, whereas the bears have plummeted prices below 49.26 levels (i.e. 7DMA).

RSI signals overbought pressures by evidencing the downward convergence to the price declines on the daily chart. While stochastic curves have shown intensified bearish momentum and have been little indecisive but bearish bias on monthly terms.

To substantiate this bearish stance, weekly MACD signals indecisiveness but downswings may extend further. Hence, we don’t encourage long-term short build ups hereafter; instead, we encourage momentary shorts in WTI crude for near term basis as the underlying price of this commodity may trade in the range of 52.50 and 45.75 levels.

Thus, envisioning the short term range bounded trend and uncertain trend in long term from above OTC market’s rationale; we reckon that the calendar straddle would be more advantageous to keep priced fluctuations on the check.

The strategy could be executed by shorting a near term straddle while buying a longer term straddle with an intention to profit from the rapid time decay of the near term options sold.

Well, it is a limited return with the limited risk strategy entered by the options trader who ponders over that the underlying spot commodity price would experience very little volatility in the near term.

Execution: Stay short in ATM call and ATM put of 1m expiry, while simultaneously buy 3m +0.51 delta call and -0.49 delta put of the similar tenor at net debit.

Maximum loss for the calendar straddle is limited and is likely incurred when the spot price had moved hugely in either direction on the expiration of the near term straddle.

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