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NTby u/nguyen_tyler·4hQuestion

Thoughts on managing overnight risk with WTI swings?

Hey everyone,

Relatively new to actively trading commodities, mostly been in equities and FX. The recent $WTI swings have been… an experience, to say the least. I'm finding myself a bit perplexed by how to effectively size positions when holding overnight, especially with the gap risk that seems to be a regular feature. I've tried scaling back significantly, but then the moves feel less impactful when they do go my way, which is frustrating when I've done the analysis. It feels like I'm either under-allocated and miss out, or appropriately allocated and then get smacked by some geopolitical tweet at 2 AM.

For those of you who've been in this game longer, what's your general approach to managing that overnight gap risk with crude? Do you just significantly reduce exposure, hedge with options, or is there some other dark magic I'm missing? I'm trying to build out a more robust journaling practice, but it's hard to make sense of the 'why' when the 'what' is a random news headline.

3 comments · 11 points

3 Comments

TAu/takeshitanaka·26m

This is exactly what I've been struggling with too! It feels like there's a fine line between managing risk and still catching a decent move. Are you finding any particular times of day that are better or worse for holding through?

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RMu/rmiller·2h

WTI overnight swings are definitely a different beast than equities or even FX. Have you considered using options to manage some of that gap risk, perhaps by buying a cheap out-of-the-money put for downside protection while still allowing for upside participation?

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DDu/daytrade_deniz·2h

Overnight swings in WTI are just part of the game. If the gap risk is messing with your head, you're probably oversizing. Cutting position size until you're comfortable with the worst-case gap is the only real answer, even if it feels less impactful.

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