How to use Options Levels to Trade Crude Oil

[00:00:00.07] - Speaker 1
Sam.

[00:00:44.03] - Speaker 2
Happy Monday everyone. Good morning, good afternoon for those in Europe and welcome back to this live. Today is going to be a special event. We have a special guest. I'm glad to have you here, Diana. I'm going to introduce you very shortly. So for those who don't know, Diana Angelo is a contributor on Top Step TV and obviously one of our specialty is trading crude oil. Today we're going to talk about that, we're going to talk about the market, we're going to talk about what data we can use, we're going to look at some price. But before we go into that, maybe Diana, if you want to introduce yourself, for those who don't know you, I'm sure there's a few of them. But glad to have you here.

[00:01:25.00] - Speaker 1
Thanks Fabio, always good to see you again. We had had a blast with Anne Marie and Patrick last time. Thank you for joining everyone. My name is Diana Angelo. Like Fabio pointed out, I've been trading for 18 years overall. 13 years out of that I've been a futures prop trader. So yes, I'm one of the people that used to go into the office and actually trade from the desk. But now everything's moved to remote trading, especially during COVID and we remain that way. So I continue to trade energies, markets. I have diversified quite a bit over the years so my specialties are energies markets and precious metals. Most recently it's been more geared towards copper, gasoline futures and the likes. But I've traded crude oil for 12 years so I can tell you some differences. How it used to be, how it is now and we could just talk about the general state of crude oil these days.

[00:02:23.24] - Speaker 2
Absolutely. And so I think what we can start with D is for those who are looking to start trading crude oil. Right. And obviously the futures market is probably the easiest one to, to enter because it's, it's quite easy to open an account and start trading crude. What are for example, the advice that you give and what are the things that people should be looking for? And if you were to start all over again, how would you approach this market?

[00:02:51.24] - Speaker 1
It's a great question. Thank you for that. So crude oil has this time based behavior that not many people realize, especially when you're first trading it. It looks like it's a pretty smooth market. But first thing to know about crude oil is that it's a kind of a double edged sword. Yes, it could be in a downtrend or an uptrend, but there's certain parts of the, when certain events happen that bring in a Lot more volume. And I'm not just talking about Nymex open, I'm just talking about the options activity and the likes. And then you think you're in a great trade, you think you're in a great trade and in a flash of a second blink of an eye, it turns around on you and goes like 70 ticks in the opposite direction. So obviously it's maybe not the best product for complete beginners, but that's one of the things to know about it. Another thing is that as it approaches settlement, for those of you who don't know what settlement is, it's the old pit hours. So back in the day we used to have open outcry pits and Nymex pit was one of them.

[00:03:52.15] - Speaker 1
Right. That usually closes around 1:30pm Eastern. No Central. I'm getting my time zones wrong because top step is all in Central. 2:30pm Eastern roughly translates to 7:30pm UK time. So after that you will see the volume drop off and that's not really that important. But 90 minutes before the settlement, you typically have yet another reversal. We can also have the euro close where the market just decides to go back the other way. And this is not just in crude oil. It tends to happen across the board because it's such a big thing, one of the exchanges is shutting down, right? So crude oil, very quick when it, when it does move. And these days it's probably a little bit more digestible for, for someone who's just beginning because it no longer has massive ranges of 400 ticks a day, 500, 600. For many years I traded crude oil with the expectation that we're going to have about three to four dollars range per day. That started changing in the election year last year, Interestingly, before the current Trump mandate, I also traded crude oil in his previous presidency as well. Same thing happened. So there's some kind of a connection there.

[00:05:14.09] - Speaker 1
I've never been able to figure out whether it's his policies that are causing that or exactly why we get the dry up in crude oil in those years. But here we are again, right? So there are certain, certain factors that will always move crude oil because it is a physical commodity. But on the, on the whole, I think that crude oil has gone through a bit of a personality transplant in the last sort of year and a half or so. It's not to say that it still can't move a lot. And when it does, it, you know, it's kind of the way it used to be back in the day. So those of us who know what it it was, how tasty it was to trade crude back in the day. We're like, hey, is back. And then it almost kind of seduces you and into more trades and then the very next day you're like, ah, no. And that's all to do with the uncertainty, with the state of the economy now. We have tariffs, nobody knows what's going to happen. We also have OPEC throwing a wrench in the works with this, you know, extra supply that they're throwing in.

[00:06:17.27] - Speaker 1
So all of that is causing a lot of uncertainty and that's unfortunately reflected in the ranges today.

[00:06:26.00] - Speaker 2
And what are the. Obviously price action is very key, but what are the other factors that you watch and you monitor when you trade crude oil throughout the day? Like, we're going to talk about options in a second, but are there any like, specific factors, indicators that you watch to be able to understand where the price action could be?

[00:06:45.13] - Speaker 1
Yeah, I've got a few. I've got about four of them. Aside from the mental Q levels as well, which are very important for overall movement. What I have here, I have crude oil on the left, I have, I have gasoline futures in the middle and then I have crude oil options levels on the right. One of the things that I start with, I'm a huge profile trader. So I will be looking at where we're opening in relation to the previous day's distribution curve, which in profile has a fancy name, it's called the value area. So that's the first step. I are we opening below, above or inside of that value from the previous day? The second thing I will track is that time of day. Are we in a time of day when you can have a reversal? How does that line up with some of my other levels? I do look at Globex VWAP as well. Are we exactly on vwap, Are we a little bit further away and or are we really far away? And that gives you a very, very simple outlook of what they're trying to achieve. In general, whenever we're very far away from Globex vwap, it's not the best idea to go with a continuation trade.

[00:07:56.05] - Speaker 1
And I mean, look, anything can happen. You know, you can have trending days, but here's some stats to, to consider when whenever you're looking for some massive trending, trending day in crude oil that just keeps going through all three sessions, those kind of days happen at a rate of about 8% in a larger sample size. So it's not going to be every day. But some people Catch these big moves every so often and then they try to catch them every single day. So just know that that's not the norm. Crude oil is a very double sided product. And even if it went up massively for London come Nymex usually they just completely reverse it. And in a way we're kind of seeing that today, right? If I just expand this chart, you can see all the way from late Asia session. We had a take profit move as I like to call them. Kind of like a fade into the end of the session and that continues into London open and then it sort of slows down for the overlap. That's always a weird, weird time for, for crude oil. Nymex opens. You can see the, the open by this red box that I have on my chart.

[00:09:06.18] - Speaker 1
Just clean up a few things. And now we're reversing completely, right? We're already halfway through the range that we've done. So that's what I'm talking about, being careful, especially after 10am Eastern because you have the options expiry and forex options and crude oil, I don't know how many people know this. Crude oil is very connected to Canadian dollar. And if a Canadian dollar has a best, basically a massive option expiring and this happens every day, you will get extra volume pumped right after that. And to put a wrench in the works, you can also have the Euro close or London close. That again brings even more volume to that kind of same opposite side. So you got to be careful of these reversals. The final thing that I look at as pretty pivotal area is the exhaustion points. I take them, they're kind of like your day, your one day max and one day min, except your levels are derived from the options volatility. My levels are just simple averages taken across previous 10 days. And one of them is tracking that number across the full 24 hours, whereas the other one is tracking just the regular trading hours for whatever your session is at the moment.

[00:10:19.12] - Speaker 1
So if it's London, it will only track the London session. If it's Tokyo, it will only track Tokyo and so on and so forth. But yeah, it's maybe a little bit more complex way of looking at things. But for me every piece of that puzzle gives me a separate piece of data. And I can basically figure out on most days with reasonable accuracy what they're trying to achieve. Anytime you have an extension of the first hour of trading range, that's typically how the time frame participants, as we like to call them in profile, it'll be larger institutions will Be commercial hedges, somebody with much, much deeper pockets that can actually move this market properly. So whenever I see a massive move that leaves a gap, it kind of leaves a hole. From the first hour range like we have today, I'm careful not to go against that. Okay. So right now be not too surprised if we see this at the bottom of the range. If we see it at 56 evens, maybe even lower. Currently I have the full 24 day exhaustion level at 5560. Another thing that I've just reminded myself of is that crude oil likes 0.24 and 0.74 as reversal areas.

[00:11:37.03] - Speaker 1
So if you see something reversing like quarter cents and three quarter, be careful not to put your stop there. So I try to keep my stops on away from those important areas in crude oil. Now funny thing is that if you have options, some of them will actually be on that quarter and on 25 and 75 cents. But for the most part you will see the options activity at round numbers. So 0.50 evens, 0.50 evens. But every so often they will, they will put it at like 0.25, 0.75. That's something to take note. And going further, I, you know, I have my overall outlook of what I want to achieve that day on crude oil and then I look at the options and anytime we run into a major GEX level, I try to see how the price is behaving. So if we have a big reversal from one of the GEX levels, I'm not just going to stay blind and just go well, I'm still going to be short, right. I'm going to look at the GAX level and go, so that was a stopping point. Obviously there's interest there and therefore maybe let's see if we can fade this back the other way.

[00:12:44.03] - Speaker 1
If nothing happens, if they just kind of bleed through it, you can even position yourself on the retest of the gets level from the other side. So that's basically how I smoosh all of these things together.

[00:12:56.27] - Speaker 2
And let me ask you maybe a question on options because I think maybe what we can do after I can show very quickly what user can see within the dashboard and then we can talk about other stuff. But how in your experience, of course, options have become very important, I would say over the past five years more than ever in the past, right. You've been trading crude oil for you said 12 years or even 18 years. Professionally, the option volume that we see today change the way the price behaves Compared to the, compared to the past quite a bit.

[00:13:35.06] - Speaker 1
So before COVID we had only 15% of volume coming from options activity in crude oil. But in the last five years, we now have about 34% of all daily volume coming from options. That's a huge jump. So I believe that if you're not looking at these levels, you are at a very disadvantage point. And you know, we're this, you know, at a disadvantage, disadvantage level anyways as intraday traders and retail traders in general. So by not looking at them and just maybe going towards some of the more traditional styles of analysis, I think people are missing out on a very, very big picture. And that's why I've started including this in, in my. I've, I've always had the options levels as a part of my trading strategy. But back in the day that involved me looking at the actual options matrix. Right. That was really difficult. And you know, you go down a rabbit hole and you're like, well, is this, is this a big level? Like, should I be putting this on? And then you end up with like a million lines on your chart and just give yourself paralysis analysis. You don't want that.

[00:14:44.08] - Speaker 1
What I really love about Matt Q. Is that you guys have digested that data and given it to us in a simplistic form as another line on the chart. That is to me invaluable because now we know that there's a lot of options activity you will even see on the right hand if we can jump to my chart quickly. So if I show you where Gex2 is, and that's one of the levels that can be very reactive. You can see we tried to overshoot through GEX4. Don't know how much people can see. Maybe I can make the letters a bit bigger. There we go. So GEX4 was one of the reversal points, but that was too early for me in the day. I never trade that. You know, I don't want to trade as soon as the market opens. I want understanding first before I actually put on a trade. But then we bleed through GEX2 and then we have a little pullback and they almost get to GEX2 by like one tick to within one tick and immediately they go lower. And even now as we're talking, there's a little bit of interest around GEX5 that can be really, really valuable if you are not sure what's happening, you're in a trending move and you don't have any other obvious levels and you're like, now what?

[00:16:13.14] - Speaker 1
Well, this is what you do, you take a look at where the options activity is. I know that for some products you guys do the intraday snapshot as well. Unfortunately, crude oil is not one of them. But so you know, if we go into some massive day, you might need to look at the options matrix yourself. Right. Which is probably a bit difficult for beginners. But let's just say we're in a normal day and you still have quite a lot of options levels to pull back on. They provide you with orientation points in a trade. So if something smashes through GEX2, then comes back up and doesn't quite manage to sustain the price above it, you know, you're looking at a continuation with a reasonable amount of certainty. So that for me takes out the guesswork even more. But I can appreciate that, you know, all of this could be a little bit too much for a sheer beginner. Another great thing is that the options levels, distance can give you the probability of how far until the next trouble zone, problem zone. So if you have a few levels that are all bunched up together all within like 5, 10 ticks, 5, 10 ticks, that very rarely leads to like very smooth moves.

[00:17:26.18] - Speaker 1
It's always going to be some sort of a chop at some point. So I kind of combine all of that and I try to run trades intraday that run for about two to three hours. I'm not somebody who scalps a lot. I'm actually a pretty low frequency trader intraday aiming between three to about 10 trades per day. But that's not all on the same product. It's like across about five different things. But I'm very selective with the types of trades that I take and having the options right there, it's amazing. But there's no doubt that over the last five, five years we've had the increase in options activity and they even have bi weekly crude oil options now. This was introduced last year in July, I think it was the 23rd of July to give the speculators and hedgers an option to, to position themselves faster in the light of fast changing market conditions that we had. And I think it's a great, great idea. But I do think that that's partly responsible for the reduction of the range in crude oil because whenever you have more speculators, more people trading it, it leads to more stability and less kind of randomness.

[00:18:41.25] - Speaker 1
But also it slows everything down, if that makes sense.

[00:18:46.09] - Speaker 2
Yeah, absolutely. And thank you for that. So basically going back, let me pull back. I think one of the questions that we get Always is like so I'm a futures trader, I don't look at option, why should I look at option? Right. But I think what we need to understand is that by looking at charts like this, option flows becomes future flows because you need to understand how the market works. So if you understand the market makers exposure behind options positions, you could understand that they hedge by trading futures. So as a result of a future trader, sometimes a move that you cannot explain with the news will be purely driven by options. That's why we've tried to simplify it. So by looking at kind of like charts like this, you can understand the market is positioned. So you come to the dashboard and our crude oil contract, we have our sentiment, we have our gamma condition right there. And then you can also look at a different expiration and you can look at the levels for, for zero DTs, options as well as all expiration by looking at the chain. So what you were referring to as the matrix is really the option chain simplified so that you understand how much exposure is expiring close to an expiration so that you can understand what is the move.

[00:20:01.13] - Speaker 2
Because once these option expire, the market makers or the dealers, they do not need to keep those hedges there. So they might actually buy back their shorts or close their longs. And therefore you see basically those spikes in liquidity that we see in the market.

[00:20:18.29] - Speaker 1
Absolutely, yeah. So you can call these levels that you guys have so gamma exposure levels, levels where market makers need to adjust inventory. So that's why you would get reactions from them even if there's nothing else there. But there's a gamma exposure level that's the one you need to reference for any sort of trading ideas. And you know, it's not, sometimes it's going to be to the take. Nothing is that exact in trading. But it is a very good area to fish for what the market makers are doing, what the mean, mean wizards are doing and how they're going to position.

[00:20:56.03] - Speaker 2
Yeah, and then I think one thing we also have D is the future price curve, which I think is very important for crude oil, especially commodities, etc. If we are in a situation of contango and backwardation can help you understand maybe the sentiment especially over the next few months. How do you like, for example, do you use these tools? Do you look at the curve of the futures when you trade crude oil?

[00:21:27.11] - Speaker 1
So I will have a look at it every so often, but it's not something that I would reference every single day. Obviously whenever you have backwardation, that's not Normal. And that's typically caused by some sort of issues in demand or supply. And that causes the inverse between cash and futures because futures should always be higher. So when that's not happening, back in the day you had this whole, I mean you can even run arbitrage based on that idea these days too if you are only trading options. I will look at it if I think that there is something major happening with supply and demand. One very extreme case of that was when we had Covid. Now we have China. That is really the, the one, the country responsible for 15% of the world demand of crude oil. So when they stopped travel, we saw what happened. Futures were negative. Right. That was a huge problem. And you know, if we have something major going on, I will be looking at the, the curves. But outside of that on a day to day basis, it's not something that we have to be super obsessed about because it, it won't happen every day either.

[00:22:43.29] - Speaker 1
Right. It's just a condition that sometimes occurs when major changes are happening between supply.

[00:22:54.24] - Speaker 2
Makes sense. And now one, one question that I might have. So by trading crude oil maybe we can go into, I can show also the CTA space because it's important to understand also where the liquidity is coming from. So we have also our CTA's model and for those who don't know, CTA's are commodity trace advisor funds. You can think about them as large hedge funds that are moving a lot of liquidity and they mostly trade through futures. So therefore again sometimes a move that you cannot explain with the news or any catalyst that could happen could be driven by CTAs. So if you can, for example, here we have a table where we have all the different assets. We have crude oil, we have gold, silver brand natural gas. And you can see kind of like the change in positioning in a table format. But very, very interesting is actually looking at the, the chart. So here what you see is the correlation between the CTA positioning, whether they're long or short and with the price action. So the way I would use this, and then I'll get your take as well is really use as a leading indicator of where the liquidity could be going.

[00:24:09.28] - Speaker 2
So if you are for example thinking on putting on a long swing on crude oil, but the market is actually short, then you're basically going against the liquidity. So obviously that can be dangerous.

[00:24:23.24] - Speaker 1
Yeah. So the CTA models, I do look at them whenever we're going to do like a swing trades and I don't really do that many swing Trades. But we do have a company that we sort of work to run more things on the swing side and partially because of the size of the positions. But another reason is that it's like a company thing. So we have to all agree what we're going to do. And these CTA models are actually pretty helpful for that. I would not necessarily use it exclusively for intraday. I still think that that's more a swing trading tool. But you know, if you're trading your own money, you can, you can trade swings, you can trade intraday, you can do whatever you like. I'm mainly a prop trader and most of the firms that I worked at had this requirement to close all your positions at the end of the day. Now, I came from swing trading. For the first five years I only did swing trading, but this was a long time ago. And the only time they would allow you to hold a swing is if it was like a third of the size of the actual entry leverage they give you.

[00:25:34.23] - Speaker 1
Now obviously that meant that unless you have a pretty big reason to be getting involved in a swing that can last for several of days or a couple of weeks or a couple of months, it wouldn't be that profitable because obviously the next day you would, you would have to like take it off anyway. You get like a risk manager coming over. It's like, so how long are you going to keep that? And you're like, well, I would like to keep it longer. It's like, well, it's in the money. You know it's in. And you know, they're slightly different expectations from, from prop traders in that regard. But yeah, if you're swing trading, I think looking at the CTA models will definitely give you an edge over the rest of the people who have no idea where the liquidity lies.

[00:26:17.17] - Speaker 2
And also like now maybe we can touch on like the options that people have to trade crude oil. Right. So trading the future is one option. But maybe like, maybe we can spend some time talking about what are the other options. A lot of traders that use spreads another way could be just trading the equity by trading, of course, the companies that produce like oil or those type of companies. How would you maybe like we can spend some time talking about that. What are the options? If somebody wanted to actually start trading oil besides of the future market, of course.

[00:26:54.29] - Speaker 1
Of course. So crude oil can get stuck in ranges. Whenever I look at very large time frames, we go like to continuous charts. Don't know whether I have one here. Let me just have a look. You will see that there are extended months where crude oil just stays in a range. Whenever that happens I like to go more into options side of things because you can, you can make a, you know, decent amount if you know where you'll where to look. So just find this quickly because obviously on the current contract you're not going to have a million data points. Let's just go into this.

[00:27:48.05] - Speaker 2
In the meantime, if you have any questions for myself or D, please send it in the comment and to answer live as well.

[00:27:55.18] - Speaker 1
Oh yeah, here's with your questions. Oops, that's not what I wanted. Okay, hold up. Here we are. Now let's go to the monthly chart and if I scale out, this is quite a lot of data here. Now consider it's a monthly chart. It's like every single candle represents one month. And if you see what was going on, for example here, this is generally a range mount market. Now this was a very long time ago, it was 2010 and you know, I wasn't even trading crude oil back then. But if you start looking at those sort of patterns when crude oil is not trending but instead gets in a very, very big range. Here's another one. And this is just a naked chart just literally looking at, you know, where were the tops, where were the bottoms? Let's make that tighter. You can see, see it established a high and a low and then it just stayed in the same range. You can even make it tighter and just got tighter and tighter and tighter. You can actually be on the option side at the extremes. And that actually could be probably even better than trying to run swings and stuff.

[00:29:08.25] - Speaker 1
Whenever we get stuck in a range, intraday becomes incredibly difficult because it's like, well it's not really moving, is it? It's not breaking out. Everybody wants it to break out. So every so often crude oil will do this. It, it's not a trending market, you know, and everything is, you're expecting a breakout, it fails and then you stay there for the entire week and you're like what is going on? When is this moving? This is why, because this is crude oil for you. And even if you go on the weekly chart, this becomes pretty obvious as well. So I like to use multiple time frames for this sort of purpose. Just to get the bird's eye view rather than looking at, you know, really small time frames. Here is one that stayed in force for many weeks. Now this was September 2022. So 1, 2, 3, 4, 5, 6, 7, 8. So you know about, I don't know, probably about 20 weeks. It just stayed in a range. Those kind of market conditions in my opinion are more conducive to options. And of course you can do, you know, more elaborate options where you know, you maybe you can do a butterfly spread or something like that.

[00:30:21.29] - Speaker 1
And usually so one thing that I see with people is that they try to apply market neutral strategies in trending markets. So anytime I hear people saying Iron Condor or, or butterfly spreads and they're like, what are you doing it on nq? And my hair just like rises, right? Because to me that's not exactly getting the full story. I mean, obviously it depends how long you're going to hold the option as well. You can have range bound markets anyway anywhere. But to me, crude oil would be more conducive for those sort of strategies. As soon as it breaks into a trend, that's a different story. You know, I will be jumping on it intraday, you know, trying to outperform the market with about two or three trades per day. And I wouldn't mess with with options personally. And it's also because of the way crude oil likes to play games. Even though it's in an uptrend, you can have these horrible days where it goes completely the other way. So even if you're on a swing, unless you had the initial push immediately, crude oil can be so painful in swings. So painful. So these days I don't even look for swings that last me for two weeks.

[00:31:34.22] - Speaker 1
I would just look for maybe a couple of days and that's it. The rest of it will be done purely, almost exclusively intraday.

[00:31:47.04] - Speaker 2
Do you ever do like daily options or like very short dated options on, on crude oil?

[00:31:52.23] - Speaker 1
I'm not a huge fan of that. I'll be honest, I'm not a huge fan of 0dtes. Now there is a little caveat that, you know, since last year we do have those bi weekly options and they happen on Tuesdays and Thursdays. You will notice that on those days crude oil tends to trend a lot more. And I think that's why. So maybe someday, you know, maybe I'll change my mind. But for now I'm going to be Granny D and stick to, if I'm doing options, I'm going to stick to more kind of traditional way of doing things.

[00:32:26.16] - Speaker 2
Yes, makes sense.

[00:32:30.06] - Speaker 1
Fabio.

[00:32:33.00] - Speaker 2
So my feel is that. So I think it goes back to the trend that we've seen in Kobe. So we need to understand that obviously there's new participants that have come into the market and maybe younger generations. And of course they don't have as much capital as maybe like the boomers have or even millennials have. So they want fast profits. Right. So 0dtes can give you like really nice returns in a very, very small amount of time. But at the same time the problem is that a lot of traders do not know how to manage the risk. So yes, you could make 3,4% a day by selling 0D's options but it could also be a day that you actually lose your all account because you haven't really managed the risk accordingly. So I think from a product standpoint we look at it a lot because there's a lot of interest and they move the market quite a bit because need to understand that basically the delta of those option is very, very sensible. So even like a small price move, if there's a lot of gamma at a zero it is level, they could actually move the market very fast.

[00:33:34.28] - Speaker 1
So I think yeah, yeah, we've seen.

[00:33:37.12] - Speaker 2
That and we see that on spx, on NQ every day. Like you know, the series level, they really play a part on them. So for me like we monitor that. I don't personally trade much, sometimes I do is daily option trade on mostly like equity indices. But I think it did bring a lot of attention from the market. And as a result basically the move that we see sometimes in the futures price is purely driven by zero. It is. So I think for, for any futures traders out there it's very key. Like you mentioned that now option account for 34% or maybe even more, we.

[00:34:17.26] - Speaker 1
Don'T know yet more in equities. This is in crude oil, right? The inequities is like gone over 50 now. I think it's 53 comes from zero DT options in ES for example.

[00:34:28.29] - Speaker 2
Yeah. In February 2025 was the month with the highest volume of zero DTs options. When we add those, all the status and all those like news. So I think knowing the behavior and the risk associated to that is very key. They can provide great returns of course, but they can also provide a lot of risk. So we do have a lot of users that do only trade zero dtes because if you catch a very small move, especially at the end of the day, you could actually make two, three times the. But at the same time you could use everything like a few minutes as well. So it's very, very, very risky.

[00:35:08.20] - Speaker 1
Absolutely, yeah.

[00:35:16.01] - Speaker 2
Do you like trade spreads at all like using the different time expirations on crude oil future?

[00:35:23.20] - Speaker 1
I don't, no, I don't. I know that in the pits they used to do that A lot. But personally, I haven't really felt the need to go down this road. And there is to me something quite nice. Knowing that I can outperform the market with just outright futures without the need to resort to spreads and stuff. And, you know, I do have series three, so just the use of different calendars and stuff, it's more appropriate for people who want to protect themselves or maybe to have a better price for, you know, their products either after they've signed the contracts or maybe at the time of delivery or something and they want to, you know, protect their risk and maybe even eke out a little bit. But for me, that's not really my main interest, if you will. I've always been interested more in becoming the nutter who's going to be outperforming the market intraday. And, you know, let's face it, intraday trading is pretty difficult. Anything that you do is a variable. So however many levels you have, that's one thing. But many people, they change their position size, they change their stop loss every day, they change like so many things and then they're wondering why things are not working.

[00:36:46.04] - Speaker 1
And I'm like, yeah, well, if you look at it as if it's a piece of code whenever you change the stop loss size and it's not based on any sort of volatility measure or anything, it's just like eyeballing it, that will bring huge irregularities into the P and L. And to this day it kind of surprises me more traders don't know that. So through some of the coaching efforts that we're doing, we're trying to spread that as a widespread knowledge rather than, you know, knowledge that just a few of us have in the industry. But yeah, spreads have never really been my main focus. And I don't really come from, from the financial world. You know, I was a musician, Sasha musician for like 20 years. Years. And then I went into prop trading in 2014. So for the first five years I was doing both careers parallel and only when I sort of got a little bit tired of music, I was like, let's try and do trading professionally because it was something that I really enjoyed and I really wanted to move into that as my second dream. But somehow spreads, I never felt the need to do that.

[00:37:54.26] - Speaker 1
And I, I know they're very interesting and some people have huge success with them. It's just not, not really my jam. Sorry.

[00:38:04.23] - Speaker 2
Makes sense, makes sense. And you obviously do a lot of coaching, top step, you speak with a lot of traders. Maybe one thing we could Spend time off is like what is the biggest mistake that trader make when they approach the crude oil market? And what are your advice for those who want to start basically trading crude oil and mistakes to avoid? Basically those are the typical common question for those who starting trading right now.

[00:38:34.21] - Speaker 1
Sure. So that's a great question. So we have two parts today to that question. So we have what is the biggest mistake in general, not just crude oil, but across the board. It's oversizing always. So people trade with way too much size in relation to the account buffer that they have. That's number one. But with crude oil specifically they are not aware that there are certain events and maybe they're expecting a smooth single direction market that just keeps going in that one direction every single day. And that's how it works. It's not how it works at all. You have like two or three times or even four or five times a day when there's a complete change of trend. So I will kind of pedal back to the time of day as a very, very important assumption of something having to happen. Like right now we just had the Frankfurt close. Today we have bank holiday in London. Usually this reversal is a lot more violent, but today it's a little bit muted. So come Euro close there's almost always a bit of a fade into it. Now depending on the size of the fade, you can even figure out whether you want to change your your mind on the trade that you currently have if you're short or maybe to just close it and go back the other way.

[00:39:52.00] - Speaker 1
So that's what I mean when I say crude oil is a very double sided market. So you have sessions chasing each other. So effectively Tokyo going one way, London going another, nine, Mex going yet another. And then inside Nymex you have like three times a day when crude oil likes to turn around and smack everybody across their face. So one of them is post 10 way cut. So post 10am central another one is Euro close. And then finally you have the settlement fade which can start 90 minutes before crude oil settles. So that will be the main points to look out for. So don't get caught in what I call the post NY card reversal. And it's very violent. We see it here as well, you know, here it is. So 10am cut, the 10am clock hits, what do we get? Massive candle down. This is not just traders exiting positions. This is too big to be a take profit move. So it is an options related activity. That's what they look like. They're not pretty. And if you were on the wrong side thinking, oh, I've got a great, you know, great long trade here on crude oil.

[00:40:59.21] - Speaker 1
I'm just going to keep going. And then that happens that people are like, wow, what was that? Was that news? It's like you don't even have to have news, it's just the time of day. Crude oil turns around around 10am all the way up to 11:30, literally 77% of the time. And I'm talking at least eight years of sample size that we've observed through our mechanical trading systems.

[00:41:31.10] - Speaker 2
Yeah, that's awesome. Yeah, I think those are the typical common mistake that we see also from, from, from our users. So as you said, crude oil is double edged sword so it can really hit you really fast. So managing risk I think is the, the key part, right? Always not thinking about the profit first, particularly about the risk that you have. And of course like it's also driven by macro news. So anything could come up that could affect the supply and demand. Like we've seen it in suddenly we stopped using crude oil and of course we saw what happened in May 2020. So I think obviously paying a closer eye to what could actually affect the market could be very, very important for sure.

[00:42:21.17] - Speaker 1
Yeah. I mean headline risk is always there with crude oil. It's even there for things like copper, gold, silver. So it's very important to know what's going on in general. But I've had some students who were completely obsessed with it and then every minor minute, you know, news they'll be like, do you think this will affect crude oil? And I was like, it's nothing. It's just, you know, rumors, somebody saying something. Yeah, but do you think I was like, no. We're looking for actual true destruction. Disruption in supply or demand. It has to be nearly like semi apocalypse almost and then you can have like enormous moves. One of my biggest days was when there was conflict in the Middle east and literally that morning they shut down one of the Iraq oil refineries. So crude oil shot up and I was actually looking at shorts. But I heard that I saw what was happening and we left huge amount of single prints to the upside. Basically left the range and never to look back. So I looked at it and I was like, this is a big deal, this is a big deal, so I'm just gonna try it.

[00:43:34.18] - Speaker 1
And I tried it. That ended up being one of my biggest days ever. And that was like $86,000. It was crazy. It was absolutely insane. All I did was one trade. I held it for hours. I Literally held it from the morning all the way to the electronic clothes. That was it.

[00:43:56.05] - Speaker 2
That must have been nice. Yes.

[00:43:58.21] - Speaker 1
Yeah.

[00:44:01.08] - Speaker 2
Some of the news sources that you use out there like any specific to crude oil that you would recommend or.

[00:44:08.19] - Speaker 1
I mean I use financial juice like I think most people do. Crude oil is not as sensitive as some of the equities and gold to everything. I always feel whenever you're an equities trader you have to be so careful because any news release, whether it's jolts, whether it's the beige book, whether it's, you know, Michigan sentiment, anything can bring the momentum and you know, any kind of action into those markets and a lot of the times whenever I am trading equities that annoys me. In crude oil you really only have the, you know, the biggest four you have. Even NFP is not that big for crude oil. But you have the inventories report every Wednesday at 10, 10:30. Yeah, every Wednesday, 10:30 Eastern you have the inventories report that's probably the biggest release that will impact crude oil. But even then they're frequently wrong. So it's not much of a repricing opportunity. Usually it's like a whipsaw up and down, up and down and then they might decide. But on so many days I've seen the report come out, it looks like it's going to go and then it just stays range. But it's almost like well we made our money with our algorithms, now we're going to the pub sort of situation.

[00:45:25.01] - Speaker 1
Sometimes it can kick off into a trend but it's not the norm. Obviously FOMC is a big one so we, we do have that on Wednesday, this Wednesday whenever there's fomc you will see a reaction but it's not going to be as insane as it is in equities. So again you can probably manage risk a little bit more. Depends what what your goals are. Right. If you want to shoot for a million ticks then do nq. But if you want something that is not stressful but still might move that day, crude oil or R Bob might be better. Natural gas as well. That's pretty cool to trade. What else inflation reports? It depends on what's going on with inflation. Crude oil obviously has a connection to inflation but not every inflation report is deemed to be ground shaking groundbreaking for crude oil. So sometimes you will see no reaction, other times a little bit. If it's a massively unexpected development then there would, there would be a reprice. There usually is with everything but crude oil has that connection to inflation. So obviously people start getting worried about recession and that has a huge impact on crude oil as well.

[00:46:45.05] - Speaker 1
But those are basically your main ones, not too many, not nearly as much as you need to track with some other products.

[00:46:53.02] - Speaker 2
Nice. And we have a really good question and I'll share my screen for this one, which is obviously a lot of investors like gold. You can actually trade gold with ETFs that follow the price of gold. I think with crude oil. With crude oil is a bit different. So what you see here is really the, the only really ETF that tracks crude oil is the uso, which is the ticker that you see here. But basically the problem with these ETFs is that they actually use futures to follow the price of crude oil. And we mentioned the, the curve before contango backwardation. So typically crude oil curve is in contango most of the times. That means that the future, the next future price is actually more expensive than the cash price. So that means that every month the ETF has to spend more money to roll the position to the next. And that causes what you see in this chart, which is really, if you bought USO ETF here, you are still losing because of that structure even though the market has gone up or down. So this is crude oil on the red line and USO on the blue line.

[00:48:11.19] - Speaker 2
If you just left your money there on crude oil, you would have lost probably 95 or 90% of the value just because of that curve. So yeah.

[00:48:22.24] - Speaker 1
Yeah, it's tricky crude oil and you know, the contango backwardation that, that can hurt people a lot if you don't know how to read it properly. So again, stick to futures. You know, crude oil is probably one of the simpler instruments where you don't have a, you know, a million options that you should trade. There's wti, there's Brent crude and most of them are traded on the futures. So, you know.

[00:48:50.29] - Speaker 2
Yeah, I think we have a question from Scott. If you could list the session times again, Dee, would be great.

[00:48:59.07] - Speaker 1
Session times? Yeah, sure. So I mentioned that sessions of relating to the next session open, that's the danger zone for reversals. But outside of that you have post and wide cut, which can go anywhere from 10am Eastern all the way up to the euro close, which is 11:30am Eastern. And then you effectively have the lunchtime in New York and you know, sometimes you get a movement, but generally I stay away from that. On crude in particular, there are other products that are better for that time of day. And then finally at the end of the day, you have from 1pm I start monitoring for potential settlement fade. Now those are not big trades. You might get like 30 ticks out of it. So it's not going to be like some big fade that you can catch and go whoopee. But 90 minutes before the settlement of Nymex, you can start looking for yet another fade. So from 1:00pm all the way up to about 15 minutes before the settlement. So that hour 15, that's the final day trading time zone is like I like to call them.

[00:50:09.23] - Speaker 2
Thank you. Yeah, let us know guys, I think we have a few minutes left. I think this was really helpful. D Very great insights, especially for those who are starting and want to like improve their strategies on crude oil. So we mentioned, of course, the data, the, the pricing, the option data and how important it is, how it has changed over the past five years and then of course, how to monitor that and prepare for your setup. Let us know guys, if you have any more questions.

[00:50:42.23] - Speaker 1
Yeah, hit us with questions. I'm surprised nobody's asking about RBOB gasoline futures. What is RBOB exactly?

[00:50:51.27] - Speaker 2
We can go into that because not.

[00:50:53.14] - Speaker 1
Many people have heard about it and yet it's like a slightly more volatile twin of crude oil. I actually prefer it these days. There's a spread that used to be, I don't know, maybe they still do it, but it was called the crack spread CRK spreads. And it involved a very particular ratio between crude oil, gasoline futures and heating oil at particular times of the year. I never did them, but I know people who have. And it's a very known strategy. And I'm surprised not more people know about gasoline futures. They are equally tasty, if not more so. If you are not happy with the amount of tickets that crude oil gives you look at crude. This is what I do. I look at crude oil levels and then I position myself in rbob, which is gasoline futures. It's my little trick.

[00:51:44.19] - Speaker 2
Nice. Yeah. And of course there's less option activity on RBOB futures, but I'm not sure.

[00:51:51.20] - Speaker 1
If, if there's any option activity on Arbog, but I convert it, I convert it into RBOB from crude oil. Or I just look at crude oil options levels and I just use them as a guide, kind of like a correlating product where you look at what would be the best example. Let's see. Well, maybe you're looking at Canadian dollar and then you look at crude oil. They're correlated assets or JPY with equities on risk off or risk on Days. So similar, similar thing. But these are even more perfect because they follow each other pretty closely. So you. Let's say I want to do a short from VWAP on crude oil. I don't necessarily need to know where VWAP is in rbob and in fact I would be expecting it to overshoot and then I might wait until crude oil touches VWAP and then just enter RBOB trade.

[00:52:50.23] - Speaker 2
Nice. That's a nice trick.

[00:52:53.12] - Speaker 1
Yep.

[00:52:58.01] - Speaker 2
Anything we missed that you think could be helpful for crude oil traders or for futures traders who are looking to enter this market?

[00:53:06.28] - Speaker 1
I mean, I mentioned all the basics. Obviously we could be here forever and talk about, you know, how setups work, you know, what exact levels I might be looking at, talking about momentum reversion versus range day. You know, we could, we could literally be here for the next two weeks and it still won't be enough because we, we all love, love to talk markets and trading. Let me just see whether we maybe forgot anything. Yeah, maybe this implication of the OPEC plus output. So that would, I would classify as a pretty big deal. So for me, I'm seeing that as a short for now. The way the intraday futures work is that any short can be faded, obviously. But don't go into, into catching a falling knife. If there is truly extra supply that OPEC is bringing in, that's, that's big. So I will be short biased. At the same time, I don't go into the day short biased because that's a bad idea. In general, I try to stay as objective as possible, but if I see them stepping in and if I see options levels that are just not reacting, that means the market makers are adjusting inventory to the downside.

[00:54:22.28] - Speaker 1
Don't fight that. That would be my, my biggest takeaway here.

[00:54:29.12] - Speaker 2
Absolutely. I think it goes back to the CTA as it goes back about liquidity. You know, you want to be, be on the right side of liquidity and you don't want to be chasing the, the move. Basically.

[00:54:40.28] - Speaker 1
Yeah. So look for the evidence of what the big boys are doing and try to piggyback. Don't try to go against them. That's just not. It's. It. It doesn't work in the long run, let's just put it that way. You might get lucky a couple times, but generally if you don't identify the market state properly, that hurts. And especially most of you like trading with size chat, that hurts even more. So we have to be on the defense, you know, positioning appropriately and making sure we're not going against the people who can really move these markets.

[00:55:17.06] - Speaker 2
Yeah. And there's a follow up question from Scott. What sources do you use to look at, you know, supply and demand for crude oil?

[00:55:25.25] - Speaker 1
So when I talk about supply and demand there's two ways. So one is obviously the physical news that we get from either the inventories report. Here's the thing about the inventories report. Even though the analysts are frequently wrong on the day, you will typically see the move resulting from the report the next day. So it's almost never on a Wednesday. It's almost like they need a day to chew through it or something and they go, oh yeah, okay, let's go long. So if you are looking at a reprice, that's likely to happen on Thursday. And another thing is general headline risk. We've had a lot of tariff news recently. So that's obviously brought quite a bit of volatility across the board. Although I would argue that crude oil probably hasn't suffered as much as some of the other products because it's still, it's not that different. In fact, to me it's now looking a little more like it used to before the election year. It's not fully back, but it's a little bit more tolerable. But if you're looking at the physical supply and demand, you have to follow the news, you have to follow the inventory reports.

[00:56:38.02] - Speaker 1
If you're talking about the technical supply and demand, that's purely technical, that's just literally looking at, you know, highs and lows, swing extremes, how do we leave the level? Whether we're in a downtrend, is there a potential supply or gap that we're looking at? Because anytime we gap down, what is that? Well, if you imagine a big red candle in the space of a gap, what do you have? You have a supply, right? So then your phys, your technical supply is going to be located somewhere around roughly 58.50. Right? So that's what I mean. There's a physical supply and demand, there's a technical supply and demand. What did the market makers and the institutions and commercial hedges actually do? And is that potentially an area of interest for them to do the same thing again? Because usually when you retest some of the big reversal points, especially on larger time frames, not so much intraday, there's a very, very good chance that the same thing will happen again for the first time. Second test, third test, we kind of start chopping the tree and then less and less interest is at that level. So it's easier to break through but it's definitely important to differentiate and delineate between the physical supply and demand and the technical supply and demand.

[00:57:56.24] - Speaker 1
Very different.

[00:58:00.12] - Speaker 2
That makes sense. Right? Let's see if we got more questions. I think this was awesome D and I think would love to have a follow up on this. Maybe when we look at levels and we look at setups more. More actionable in terms of how you look at it. Maybe we can do that on a separate session. But I think this was awesome. Thank you so much for your time and thank you for spending time with us and look forward to having you back here very soon.

[00:58:33.17] - Speaker 1
Fabio, thank you so much for having me. This was very fun as always and just a sheer level of intellectual discussion that we we can have. I really enjoy that. So yeah, I would love to come back anytime and yeah, let's do it sooner rather than later.

[00:58:51.08] - Speaker 2
Sounds good. Awesome. Thank you guys. Thank you for watching. Have a great.