Trade The Journey

Trade The Journey

Marathon Oil – $25.5 Put Option 1-13 Expiration

Crude Oil Daily Chart:

Marathon Oil Daily Chart:

Greetings, the trade I placed last week was a bearish put position on Marathon Oil. Crude oil had spent the previous two days declining, so I decided to place a bearish position on Marathon Oil. Crude oil was near a support level, as was Marathon Oil. Below is a quote from an article on the trading platform I use that describes why prices may have rebounded aside from the technical picture.

U.S. commercial inventories of crude oil increased sharply last week as cold weather caused refinery activity to slow much more than forecast, according to data released Thursday by the Energy Information Administration.

Once Marathon hit the support level, it rallied for the next two days, rendering my position to a huge loss. On the first day of the rally, I had an opportunity to close the position but I did not. I decided to review the chart of Marathon Oil and Crude oil futures to gain a better understanding of what was happening. The only problem was, I did not review the charts or look at the position.

Instead, I reasoned that an analysis performed before the market opened would be just fine. I never looked at the charts. When I finally opened the position about thirty minutes after the market opened, I saw the Marathon gapped up on the open causing me to immediately close the position with a huge loss.

If I looked at the 5-minute chart before the opening, I would have seen that buyers had stepped in before the market opened and that would cause the price to gap up. Marathon gapped up and tested an important average, the 200 simple period moving average. Marathon closed slightly above the 200 SMA.

Some of the graphs I formulated after the trade probably would have helped me more if I had done them before the trade.

Let’s take a look:

This first chart highlights where I entered the trade, highlighted green, and where I exited the trade, highlighted red. The option premium is clearly declining when I entered the trade. Implied Volatility was about the same for the entirety of the trade. Look at the open interest which increased as the option premium fell to a new low. Obviously, traders that watched the chart saw that Marathon Oil hit its 200 SMA and saw that it was more likely to decline after its short rally.

Somehow this chart was made in reverse with the most recent price action and date at the beginning. The gamma rose as the option premium rallied from $0.37 to $0.92 and as the option premium fell from $0.92 to $0.22. The theta increased slightly as the week ended. Look at how the delta moved early in the trade when the option premium hit a high of $1.10 versus when the option premium peaked at $0.92. The chart above shows a much higher volume when the option premium reached $1.10, most likely buying volume.

Volatility fell as the stock price rose but picked up toward the end as the stock price fell. 

For the next trade, here are the adjustments:

  • DO MY HOMEWORK meaning review the charts, news events, economic reports, and indices.
  •  Look at the 5-minute chart before the market opens.
  • Complete excel charts before placing the trade.
  • Adhere to the loss level set BEFORE OPENING THE TRADE
  • Exit trade without worrying about what could have been

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