Oil Seasonality Trading

Oil Seasonality Trading

Continuing the subject of oil we continue to look into it further. Onto seasonality. Using season is not definitive, but rather another tool to help identify opportunities and help make sense of the chaos.

If we look at the chart provided below we can see that the best time to buy Crude oil is February and Sell in August approx. Research has been provided by equity clock and they noted that if a trader has a buy date on the 24^th of December and sell date August 21^st, from 1990 to 2009 investors would have accumulated a return of 344% vrs a buy and hold return of 60% over that same time period. We will assume this data is correct.

Where we are looking into the data is where the 14 odd times noted in this blog page: http://novitytrading.blogspot.com.au/2015/02/can-oil-drop-30-barrel-and-go-to-20.html what time period where they I have noted that the low period of times where the market went beyond and made massive downside moves is from mid-November to end of December. This falls in line with the seasonal charts.

Looking back now at USO we can see that based on the seasonality there is a probability that this is the bottom.

Also looking at another ETF the RSX which is heavily geared to OIL has also made some sort of base and appears to changing its trend.

The Take Away;

If you are looking to get on the band wagon the best way would be to look for high volatility within options. Looking at the RSX the volatility has already come back as the market has been stable for about 2 months now and is steadily moving upwards now. A lesson to learn is to trade Volatility, if you were looking at volatility you would have been cashing in on the RSX over the last couple of months, at the same time looking at your risk as owning the RSX (Russian) market.

USO volatility is still high so good for selling option premium but one thing when trading the USO is be aware of the drag as the underlying is the futures contracts, where contango and backwardation will have an impact on the price. It’s a potential play but maybe another play is the futures contract. If going the futures contract and future options be aware of your notional value and don’t over trade because of the low margin.

Something to think about and add to the traders arsenal of goods to try to place and stack more odds in the traders favor.