oil volatility, reversion to the mean
oil volatility or the implied volatility of USO is nearing an extreme.the futures are still in a decent contango.
so what does that mean? the cost of options both on the upside and downside is dirt cheap, but the cost of carry spread is nearing a reversion.
in contango CL futures outperform vs USO or a future equivalent etp due to cost to carry/decay. however when in backwardation (expansion in volatility) USO outperforms CL futures to the downside.
how to play. USO leap puts, calendars, put spreads or back ratios. vs CL call debits.
so what does that mean? the cost of options both on the upside and downside is dirt cheap, but the cost of carry spread is nearing a reversion.
in contango CL futures outperform vs USO or a future equivalent etp due to cost to carry/decay. however when in backwardation (expansion in volatility) USO outperforms CL futures to the downside.
how to play. USO leap puts, calendars, put spreads or back ratios. vs CL call debits.
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