Heating Oil Credit Spread Look Back Trade

HO (Heating Oil) – 6/14/2016

This was a commodity trade I made in June. Commodities tend to trend better and more often than stocks and can be a good way to trade options. You have to be careful because of risk and assignment ramifications if you do not completely understand commodities. I do not recommend them for the average investor.

As I said I do not trade many of them any more but I might in the future. There was a time when I did a lot more commodity trading, but it has been a while and without practice you lose a little bit of your edge.

On this trade it looked to me based on technical analysis that HO was in a good down trend so I decided to place a Bull Put Spread betting the up trend would continue. With HO trading at $1.4982 I sold five contracts of the JUN16 $1.41 Put for $0.0053 and purchased five of the JUN16 $1.39 Put to cover for $0.0035. Do not be fooled by those option prices. I was controlling a lot of Heating Oil. The sold Puts brought in $1,113.00 and the long puts cost me $735.00 for a potential profit of about $378.00 in ten days on $3,822.00 in risk.

On 6/16 HO had dropped down to $1.45 making me a little nervous but I held on. By 6/23 HO was back up to $1.53, but I still had the Britain EURO vote to go that night. I probably should have closed the trade at a profit but I decided to hold since it was about to expire anyway. The EURO vote did not threaten my position and it expired letting me keep the entire $378.00 for a return or 9.89% in just ten days. About 360.99% annualized.

Date

Sym

Exp.

Strike

Price

Contracts

Type

Cost

Balance

06/14/16

HO

STO

HON1.41P

$1.41

$0.0053

5

Put

$1,113.00

$1,113.00

06/14/16

HO

BTO

HON1.39P

$1.39

-$0.0035

5

Put

-$735.00

$378.00

06/24/16

HO

Exp

Profit

$378.00

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