Buy Alert: 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…
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
