Tue, May 25, 2010 | Jared Woodard
Crude has been hammered pretty hard in recent weeks. My instincts tend, like yours probably do, toward being a net seller of options when implied volatility has become historically expensive. But it’s also a good idea to respect the current trend, as I mention here:
While capturing historically high implied volatility is often a profitable approach, a price trend this strong should be respected, so any short volatility trade should either be long some gamma or should have a delta bias sufficient to tolerate additional downside momentum. The following complex position using Light Crude Oil (NYMEX: CL) has both of those features:
The balance of the post is here.