Wagering Horses, Like Oil Markets

I got a note on Friday from a friend, detailing his view of the general credit markets and, in his first paragraph, oil.

He doesn't wager, he trades, yet his mantra of making sure someone else is on the wrong side teaches us bettors' a lesson we all, deep-down know.

Last Monday, the consensus on oil was to be short. The entire world was running out of stockpile capacity, and supply was up thanks to the Saudis doing bad things. Because of this, especially in inland basins, the consensus view was for negative prices.

Then, next-level replaced first-level. Diplomatic pressure on the bad actors, from primarily U.S. but backed by most others, cracked the narrative. Oil prices rallied 40%, and the consensus view lost a pile of money, scrambling to cover.

He wrote, "it's a reminder there is usually no way to make money with a consensus view".

Those words involve billions of dollars a day, but they're exactly what we have to do with our $48 pick 4. We get paid when we're against a consensus view, and we get paid in multiples when that view clicks.

This process is hard for you and me, and it's hard for traders as well. Navigating implied versus realized volatility is not easy when trading oil, or making a pick 6 ticket.

But as a discipline there is no way around it; it's something we absolutely have to embrace. With 20% takeout, it's as impossible to make money with consensus as it is for people trading oil off a consensus twitter trend last Monday. "That horse can't lose" is not too dissimilar to "there's no way oil can rise this week" more often than not.


Have a nice Sunday.