UCO Straddle Failed Miserably – Straddle Explained

I messed up big time Friday.  I decided to take advantage of the anticipated volatility caused by the outcome of Sunday’s OPEC meeting.  Expecting that oil will swing either up or down significantly after the announcement,  I decided to play “Straddle” using UCO (an Oil ETF I’ve explained before)

What is a “straddle”?   “Straddle” is an option trading strategy in which you buy both the call (long) position and the put (short) position at the same time using the same strike (the price in which you have the right to sell or buy before expiration) price.

The idea here is to take advantage of implied volatility.  As a straddle player, I don’t care whether the price goes up or goes down.  I just want it go up or down BIG so that the gain from call or put position will supersede the loss from the other.

So where am I going with this? Well the mistake I made was that I only ended up buying the call option and not the put option. My bid for the put simply did not get filled before close. Now I’m screwed if the oil price goes down after the OPEC meeting because I am only holding the call (long) option. If price dips, I lose.

…and guess what? OPEC decided not to cut production further, which has taken the oil price down over 3% so far. F^*k!!

Lesson for today – if you’re executing a straddle play, make sure you execute it even if it means paying a bit more for what the asking price is. (in my case, my bid was $.90 per contract while the ask price was $.95 per contract)

Don’t be stupid like me.