Futures paper trading: Light Sweet Crude Oil Futures

In this marketwatch commentary, An investor’s guide to the Middle East, James Anderson points out that the United States Oil ETF USO has to roll over about 19,000 oil future contracts that expire in late March. The implication is that they might fall in price.

I could short the March contract, but that exposes me to unlimited risk if oil spikes in the next 8 days. So let's buy a Put:

BUY +1 /CLJ1 1/1000 MAR 11 104 PUT @2.84 LMT GTC
Break Even 101.16
Cost of Trade including commissions $2,840.00 + $3.00 = $2,843.00

Notes:

1. Options on Futures seem to have different multipliers: instead of 100 x 2.84, it's 1,000 x 2.84
2. The contract traded Wednesday around 104.70, which means my break-even is 101.16. That seems like a biggish move; maybe I should buy an in-the-money put (despite the expense).

BUY +1 /CLJ1 1/1000 MAR 11 107 PUT @4.00 LMT GTC
Break Even 103.00
Cost of Trade including commissions $4,000.00 + $3.00 = $4,003.00

placed after hours; we'll check back tomorrow...

Update March 10, 2011

• Another unfamiliar thing about futures options: it actually filled at 8:30 p.m. Central. Stock options only trade from 9 - 4 Eastern.
• It filled at $1.99 ($1,993 outlay) and after hours today is trading around 4.50. So that's a 125% profit in 24 hours.
• Paper trading sometimes gets unrealistic prices, but as far as I can tell, the trading range today really was between 2.01 and 4.50, so it seems believable that it could have traded at 1.99 last night.

Update March 11, 2011

Rather than just sell out, I sold a 103 put @ 3.26, collecting $3,257.
Now I am up 1,264 in cash, and I have a vertical that's worth $1,000 if the March contract is below 103 at expiration.

Update March 15, 2011

Well, I would have been MUCH better off just long the 104 put. Today the March futures are at 97.71 and the 104 put is 6.60 (4.60 profit). Instead, I closed the 104/103 vertical for .98 so my profit is 1,264 + 980 - 6 commission = $2,238 (112% in one week, but could have made $4,604 or 230% by leaving the riskier long put alone.)