Buy Alert: January 16, 2015
Buy Alert: January 16, 2015
Option Strategy:
Buy Energy Select Sector SPDR (XLE) January 30, 2015 $75 calls for $2.00 or better.
Commodity Outlook: Oil
Due to what I’m seeing in the market right now, today’s trade alert has to be quick. There may not be much time to enter this trade at a good price.
Let’s get to it…
Believe it or not, there’s a short-term bullish trading opportunity in crude oil. Despite a bearish EIA inventory report on Wednesday, crude has seen 3 days of massive short covering this week.
Maybe this is the bottom for oil, maybe it’s not.
But here’s the deal…
Thinking purely in terms of risk/reward, we have to take another shot at a long oil trade at these levels. If we’re wrong, our risk is limited to the recently set lows. But if we’re right, the upside will be enormous.
So here’s what we’ll do…
Resource Play: Energy Select Sector SPDR (XLE)
As you may know, XLE is one of the most highly traded energy ETFs on the market. It holds a slew of the biggest and best oil producers in the world including, Exxon Mobil (XOM), Chevron (CVX), and Conoco Phillips (COP).
If WTI crude oil bounces back above $50 next week, XLE is sure to follow.
So here’s what we’ll do…
Buy the XLE January 30, 2015 $75.00 calls for $2.00 or better.
The current bid/ask spread for this contract is $1.76/$1.90
Do not pay more than $2.00 per contract!
Our official entry price for performance tracking is $1.90. Your price may be higher or lower.
Exit Strategy:
Remember, we want XLE to trade higher. As you can see, there’s a clear double-bottom pattern forming in XLE. The fact this pattern is present makes it even more likely the energy ETF sees strong upside. Of course, oil will likely have to bounce next week for the pattern to play out effectively.
Our first profit target is $78.00, while our second target is $80.00.
The risk control price for this trade is $72.50. If XLE trades below that level, conservative investors should consider closing this trade to preserve capital.
Keep in mind…
I’m choosing very short dated call options in this trade- the January 30 expiration. Since expiration is at the end of this month, the risk is inherently higher. We’ll need to right, and quickly, in order for this trade to pay off.
If you’re extra conservative, this may not be the trade for you.
Category: Commodity Trading
