Crude Oil is pulling away from the market’s biggest storm in seven years. A measure of price volatility has tumbled from the highest level since January 2009 as the market frenzy eases amid a potential pact between the world’s largest producers to freeze output. 

Oil prices giving up its gains in European trade on Wednesday, dropping prices amid speculation on weekly supply data due later in the session will show U.S. crude inventories fell at a faster pace than expected last week.

The U.S. Energy Information Administration will release its weekly report on oil supplies at 14:30GMT, expectations for a drop of 2.5 million barrels.

Hedging frameworks:              

The bulls have shown clear buying interest so far from last couple months to substantiate the signals offered by leading indicators on monthly, but for now crude oil is crawling reluctantly between minor gains and losses during European trading session on today ahead of U.S. supply estimates in focus.

So, with hedging mindset we like to deploy 1M in the money WTI +0.51 delta call option (1% strike)and simultaneously, short an out of the money call (2% strike) of 1W tenor with positive theta or closer to zero.

This would mean that the chances of upside risks of would be taken care by long positions (ITM calls).

The hedging cost would be reduced by short positions as shown in the diagram if the underlying commodity price rallies after 1 week and prices stay stagnant within shorter tenor (should not go below 1% in 1W).

Vertical bull spread strategy is employed if you think that the price of the underlying WTI crude will rise reasonably in the longer term.