FxWirePro: WTI crude gains as EIA crude inventory shrugs off estimates – not a buy yet

As per our forecasts WTI crude oil futures (CL!1) has been extending its loses from last month's highs at around 59 levels to 47.44 in first stage and again below 42.22 levels (our 2^nd target). Currently, on NYME, WTI crude oil futures for August delivery slumped 1.5 dollars from last week to trade at $40.19 a barrel during Europe mid-day hours.

Crude inventory levels: The recent negligible gains on crude are majorly due to the data release of EIA's US oil inventory levels which was negatively printed at -5.5 millions, while forecasts were at 1.0 million. As a result the prices were recovered from 38.52 to current $40.19 levels. This may be looked as some short term price recovery phase but certainly cannot jump into a conclusion of trend reversal; we are still bearish on this commodity.

Always remember the FX option's delta and vega would have the huge impact on a long put position should the market bounce. So the recommendation would be "long vertical put spread" that will cut down the exposure you have against dubious rallies in anyone's mind, but more significantly it will also reduce the exposure you have to Vega, the relative effects of volatility on the option prices.

Using current rallies as an optimal entry price, when we have 2.47 Vega with 15% implied volatility on (2.5%) In-The-Money put option. This would mean that the chances of upside risks of option prices to reduce by US$37.05 if the underlying exchange rate rallies.