Buy Alert: April 17, 2015

Buy Alert: April 17, 2015

 

Option Strategy:

Buy US Oil Fund $USO May 15, 2015 $19.50 puts for $0.80 or better.

 

Commodity Outlook: Crude Oil

Bulls have been ruling the roost the past few days in WTI crude.  The commodity is up nearly 9% in the past week.  What’s more, WTI ran to a new 2015 high in yesterday’s trading session.

Thanks to the oil price rise, investors are pouring money into energy stocks.  In fact, the SPDR S&P Oil and Gas Exploration and Production ETF $XOP is up 17% in the past month and 6% in the past week.  Of course, we’re also seeing substantial gains in our oil producer call trades.

But listen closely…

While this bullish action is nice to see, I don’t think oil is ready to break to higher prices just yet.  In fact, I wouldn’t be surprised to see one more trip to the low $50 a barrel range.

That’s why we’re putting on a low risk trade that will benefit from falling oil prices…

 

Resource ETF: US Oil Fund $USO

As you may know, $USO is a great way to capitalize off oil price fluctuations.  The ETF trades in lockstep with the price of WTI.

Since there’s a good chance oil falls back into the mid- to low- $50 range, now’s the perfect time to buy puts in the ETF.

Here’s what we’ll do…

Buy the $USO May 15, 2015 $19.50 puts for $0.80 or better.

The current bid/ask spread for this contract is $0.69/$0.70.

Do not pay more than $0.80!

Our official entry price for performance tracking is $0.70.  Your price may be higher or lower.

Exit Strategy:

Remember, we want $USO to trade lower.  Our first profit target is $18.00 while our second target is at $17.00.

Our risk control line for this trade is at $21.00.  If $USO trades above that level, conservative investors should consider closing this trade to preserve capital.

Until next time,

Justin Bennett

*** Editor’s Note***  Don’t let this new put trade in $USO sway you from your open call trades in $MRO, $OKE, $OAS, and $WPX.  If oil keeps rising, we’ll stop out of these $USO puts, but our calls will likely keep gaining value!

Category: Commodity Trading