Buy Alert: January 8, 2014

| January 8, 2014

Buy Alert: January 8, 2014


Option Strategy:

Buy US Oil Fund (USO) February 2014 $33.50 calls for $0.90 or better.


Commodity Outlook: Crude Oil

2014 is not starting out so well for crude.  Thanks to the swift drop from $100 a barrel to the $94 area, the commodity is the leading loser in the commodity space this year.

But here’s the deal…

The recent drop has crude oversold on a short-term basis.  And that means we’ll likely see a bounce for the commodity over the next few days. 

What’s more, the late November low is at the $93 area, a stone’s throw away from current prices.  That means the buyers will likely enter the market in force at that technical support area.

And technicals aren’t the only thing telling us to get bullish of oil…

Yesterday’s American Petroleum Institute (API) weekly inventory report showed a larger than expected draw in US crude stocks.  And that means we’ll likely see similar results in this morning’s EIA inventory report.

To capitalize on a crude oil bounce, let’s buy calls in the US Oil Fund (USO).  When oil rallies, so does USO.

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


Trade Metrics:

Underlying ETF Symbol: USO
Call or Put: CALL
Expiration Month, Day, Year: February 21, 2014
Strike Price: $33.50
Current Bid/Ask Price: $0.84/$0.87
Maximum Buy Up To Price: $0.90
Maximum Risk Per Contract: $90.00

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

WTI Crude


Exit Strategy:

Remember, we want crude to trade higher.  Our first profit target is $97 a barrel.  If US inventories decline more than expected in coming weeks, we could see a quick return to $100.  

The risk control price is $91.50.  If crude drops below that level, conservative investors should consider closing this trade to reduce risk.

Until next time,

Justin Bennett

Category: Commodity Trading