WDIS Futures: Fourth Generation

Questions Week 5

WDIS Futures: Fourth Generation

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Chris and Pete answer viewer questions on Crude Oil (/CL) and Calendar Spreads.

Questions:

  • All too often I’ll see /CL make a big move when it reopens at 4:30 pm est ... what causes this?

  • Aside from a perceived bullish slant to prices (back months higher than front months) in a contango curve in crude, what other factors contribute to contango being the "natural state" of the curve? I've heard carry costs, but I was curious what makes contango work as it does that people would be willing to pay more in the future months?

  • I would like to find if it is possible to create a calendar spread for options on crude oil futures (/CL). Since we would be dealing with different expiration crude futures in this case, would it be a good idea to generate a Theta positive and Vega positive trade to take advantage of a rise in volatility (OVX)? What are the pros and cons of this trade?

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