Crude Oil (Brent) 04/08/2011
Why did you enter the trade (what were your expectations?)
“Libya burns, Japan shakes, Nigeria's nervous, Portugal bails, Bahrain bubbles and now China troubles. Do you need any more reasons for oil to go higher?” (Flynn, 2011, para. 1). Having read an article that suggested increase in the price of oil, I decided to set up a bull calendar spread.
How did you set up the trade and how did the execution proceed?
I executed a market order to buy two contracts of IBK11 - Crude Oil (Brent) MAY 2011. As for the short leg of the spread, I set up a contingent order upon USO price. If the USO price drops below $44.5, the order to sell two Crude Oil (Brent) JUL 2011 contracts will be executed, resulting in bull calendar spread. On 4/11 USO dropped below $44.5, and as a result contingent order was executed.
How did you manage the risk of the position?
To lower the risk of the position I set up a bull spread, instead of taking a naked long futures position. Bull spread reduced the risk of a larger-than-expected loss in case the price of oil would decrease. In addition, calendar spread required much lower margin compared to the naked position.
How and when did you exit your position? Were your expectations realized?
My expectations were not realized as oil price plunged on 4/11. I decided to exit my positions via market order on 04/14/2011 by taking opposite positions in the same contracts. Contingent order to sell two JUL 2011 limited a loss to $1,726.32.
Crude Oil 02/22/2011
Why did you enter…