How I created a ‘free’ trade in Crude

Alright, folks. So today we’re gonna cover a strategy I call the free trade option strategy. What the heck is the free trade option strategy? How’s it work? Well, let me demonstrate. So basically what I’ve done here, I’m looking at a four hour chart of crude oil and identified a chart here, or an area that I wanted to be a buyer in crude oil actually made this decision off of the lower timeframe right here on the hourly. And what I did is, instead of going in with the futures market, I could have gone in with the futures market, but I have a little bit less wiggle room. Because I, if I’m going in with a fixed stop, I’m at the mercy of that fixed stop and just being stopped out and not being able to capture part of the larger move. So what I did is I bought crude oil in the in the form of options. So I came over here to the options change chain, you’ll note that the expiration is on March 17, expiration is on March 17. So what I did is at the time, I bought the 96 strike about the 96 call option. And you can see I paid 290. So come down here you can see long, at 290. And you can see that position one at 290. It means I paid $2,900 For this contract with the expectations of crude going higher now right now looks like a pretty good position, it’s up about $700 crude is bouncing all over the place, crude is actually down $5 for the day, at 98. And you can see is really trading all over the place. So what I did is as price moved higher, I went out to this chain this option chain on crude oil, and I look to sell a strike higher out that would effectively paid for the cost of my long options. So right here, as you can see, I paid 290 $2.90 for this 96 Is 20 $2,900 a contract, what I did is the 90 sevens, I went out and sold the 90 sevens for actually 295. So it’s actually a little bit better than a free trade here. I’m going to get paid regardless of what happens to crude oil. So you can see. I’m short at 295. So if we do the simple math on that, let’s do this. So I bought the 96 call at 290. I sold the 97 call at 295. Okay, so if I, if I bought this and sold this, basically have a credit of five cents. And we’d multiply in crude oil terms, we multiply this times 100. So I have a net credit of $50 a contract. That’s a $50 credit. Okay, so what happens now? Well, there’s two scenarios. If, let’s say by Thursday’s expiration by March, the March 17, expiration, and crude oil is at is below $96. Let’s put $96 Right here. If crude oil is anywhere below 96. These offset these offset, these both expire worthless, and so I keep $50 keep $50. Now let’s say that we are above 97, that Thursday’s expiration, we are above 97. I keep the difference between the two strikes, which in this case is 97 minus 96 is $1 for each contract is worth $100. So I multiply that times 100. And I keep the premium difference. So I keep the keep the difference between the strikes here, which is $1 or $1,000. Less any premium pay but in this case it was a credit. So actually get to keep that extra $50 for a net of $1,050. And that’s the best case scenario. That is the best case scenario that happens above that we expire above 97 at expiration Worst case scenario, we closed below 96. These expire worthless and I keep the $50 per contract. So I would encourage you to take a look at options. Now this is not the weekly options. This is actually this is actually the March contract a march expiration for the March contract but we do have weekly options on crude oil as well as other markets that we can use to our advantage each and every week.