misterno wrote:Call options at this time are very expensive because everybody is expecting oil prices to go up in the long term
I can sell put options and I know that I will be making money in 2-3-4 years time if I wait. But what if the buyer of the option wants to put it back to me before that then I will be toast.
Someone help me find a financial instrument. Brent will not stay this low forever.
OK. Let's try again, more slowly.
1). If you are going to trade options:
a). You need to know what you are doing.
b). If you trade big enough to potentially be "toast" -- DO NOT DO THAT. Options have leverage, and leverage is where the uninformed or greedy can BANKRUPT themselves.
2). If calls are expensive, then puts are expensive. There is a basic option principle that many combinations of options and the underlying can be synthetically used to replace each other. Thus there is a concept called put-call parity. So if calls are expensive, so are puts. Seriously -- if you're going to trade such things you need to get a book or three and learn such concepts.
https://en.wikipedia.org/wiki/Put%E2%80%93call_parity3). You ABSOLUTELY DO NOT KNOW that if you sell put options on crude oil or their derivatives that you "will be making money" in 2 to 4 years. I happen to think that's a reasonable bet, but speculating that it is absolutely certain by selling put options is a good way to destroy your portfolio. Can you handle massive losses in 2 to 4 years if it takes, say, 10 years for oil to move way back up? What happens if there is severe oil contango or backwardation when you want to roll your contracts forward if you need to wait? (There are reasons only about 10% of nonprofessionals make money trading commodities).
4). Unless you are trading big enough to be dangerous, it makes NO practical difference whether you are trading American or European style options, if you know what you are doing and don't overtrade. Example: Sell a $50 put for 2 years out. Oil declines to $25. Now, you're underwater $25 per barrel, less your original premium. This is true whether the oil futures get put to you early and you turn around and sell them, or you buy the put options back for rougly $25 per barrel (so deep in the money they will likely have very little premium) and take a big loss.
(Obviously you don't want to let the oil futures themselves expire, and inherit trainloads of oil. But as long as the futures have time left in them, you can trade them.)
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.