Buy Alert: June 19, 2015

| June 19, 2015

Buy Alert: June 19, 2015

 

Option Strategy:

Buy SPDR S&P Oil & Gas Exploration & Production $XOP September 18, 2015 $48.00 puts for $2.70 or better.

 

Commodity Outlook: Crude Oil

Oil market sentiment is once again shifting in favor of the bears…

As you know, WTI crude has been trading in a tight range around $60 a barrel for the better part of the past two months.  Despite some good reasons to take the market higher, investors just aren’t doing so.

That leads me to believe there’s some downside coming for WTI in the near future.

With WTI down 2% and below $60 a barrel again in today’s session, there’s a growing possibility of a washout to the mid- to low-$50 range in coming weeks.

Here’s how we’ll trade it…

 

Resource Trade: SPDR S&P Oil & Gas Exploration & Production $XOP

As you know, $XOP is an ETF holding a basket of small- and mid-cap oil and gas producing names.  $XOP has been performing quite poorly since early May, despite WTI holding near multi-month highs.

If WTI takes a sharp turn lower, $XOP will likely lose ground quickly.

In fact, the ETF is trading at important technical support at $48 as I write.  If it loses this level, we may see a downturn to $46 or lower.

So here’s what we’ll do…

Buy the $XOP September 18, 2015 $48.00 puts for $2.70 or better.

The current bid/ask spread for this contract is $2.56/$2.60.

Do not pay more than $2.70!

Our official entry price for performance tracking is $2.60.  Your price may be higher or lower.

Exit Strategy:

SPDR S&P Oil & Gas Exploration & Production

Remember, we want $XOP to trade lower.  Our first profit target is $46.00 while our second target is at the yearly low near $43.00.

Our risk control line for this trade is at $50.25.  If $XOP trades above that level, conservative investors should consider closing this trade to preserve capital.

 

Category: Commodity Trading