Buy Alert: February 21, 2014

| February 21, 2014

Buy Alert: February 21, 2014


Option Strategy:

Buy US Oil Fund (USO) April 2014 $35.50 Puts for $0.55 or better.


Commodity Outlook: Oil

WTI crude oil has had quite a run over the past month.  Calls for increasing global demand, along with Venezuela’s political situation, have pushed the commodity to multi-month highs near $103 a barrel.

But the bullishness will likely start waning soon…

At today’s closing price of $102.90, oil is technically overbought and ready for a swift downturn.  There’s a boatload of important Fed manufacturing surveys hitting the headlines next week and it’s likely that they’ll trigger a crude selloff.

To capitalize on a downdraft in oil, let’s buy puts in the US Oil Fund (USO).  When oil falls, so does USO.

Here are the important details you’ll need for this trade…


Trade Metrics:

Underlying ETF Symbol: USO
Call or Put: Put
Expiration Month, Day, Year: April 17, 2014
Strike Price: $35.50
Current Bid/Ask Price: $0.47/$0.49
Maximum Buy Up To Price: $0.55
Maximum Risk Per Contract: $55.00

 Here’s a breakdown of the important technical support and resistance zones in WTI crude…

WTI crude


Exit Strategy:

Remember, we want oil to trade lower.  Our first profit target is $97.50.  If bearish economic data builds in coming weeks, we may see crude drop to the $92.50 area.

The risk control price is $106.  If oil rises above that level, conservative investors should consider closing this trade to reduce risk.


Category: Commodity Trading