Buy Alert: January 21, 2016

Buy Alert: January 21, 2016

 

Option Strategy:

Buy US Oil Fund July 15, 2016 $8.50 calls for $1.50 or better.

 

Commodity Outlook: Crude Oil

Something very interesting is happening in WTI crude this morning…

Despite a highly bearish report from the EIA, which showed big builds in crude and gasoline inventories, the price of crude is rallying sharply.

In fact, the deeply oversold commodity is up 4% as I write to $29.61 a barrel.

Folks, when a heavily oversold market rises on bearish information, it’s a sign sellers are exhausted.  As a result, we could be in for a face ripping short covering rally in the oil complex.

Here’s how we’ll play it…

 

Resource Trade: US Oil Fund $USO

As long-time subscribers are aware, $USO is our go-to asset for trading the WTI crude market.  The commodity ETF tracks the price of WTI directly. When crude rallies, so does $USO.

So here’s what we’ll do…

Buy the $USO July 15, 2016 $8.50 calls for $1.50 or better.

The current bid/ask spread for this contract is $1.20/$1.43.

Do not pay more than $1.50!

Our official entry price for performance tracking is $1.43.  Your price may be higher or lower.

Exit Strategy:

Remember, we want $USO to trade higher.  Our first profit target is $11.00 while our second target is at $13.00.  Keep in mind, we’re going with a longer expiration in today’s trade, July, which will give this trade plenty of time.

Our risk control line is at $7.80.  If $USO trades below that level, conservative investors should consider closing this trade to preserve capital.

 

Category: Commodity Trading