VIEWS: 4 PAGES: 1 CATEGORY: Business & Economics POSTED ON: 6/21/2010
There is nothing that the trader can do about the put premium but they can sell some call premium against the position that will defray the overall cost of the position. When the trader sells the call, there is no upside risk to the position since the long futures position will go up in tandem with the short call position. Since crude oil is trading far above the mean, the options on futures are negatively skewed to the upside and positively skewed to the downside. This means that the rime value that is embedded in the options premium increases with lower strike options and conversely decreases with the higher strike options. This is a great strategy to use if the trader is already long futures.
OPTIONS STRATEGY Dan Keegan Futures; Jun 2010; 39, 6; Docstoc pg. 16 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
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