Buy Alert: May 29, 2013
Buy Alert: May 29, 2013
Option Strategy:
Buy US Oil Fund (USO) July 2013 $33.00 puts for $1.25 or better.
Commodity Outlook:
The price of West Texas Intermediate (WTI) is poised to drop in the near term.
Why?
Weekly Energy Information Administration (EIA) inventory data shows US crude supplies are reaching the highest levels in decades. And without question, growing supply is a bearish sign for the price of oil going forward.
What’s more, exuberance in the stock market has helped support the price of oil in recent weeks. But now that we’re starting to see a correction in stocks, oil has plenty of room to fall.
How can we capitalize on a potential drop in oil prices?
As you may know, the US Oil Fund (USO) is a commodity ETF that closely tracks the price of WTI crude. By buying puts in USO, we’ll profit handsomely if oil breaks below $90 a barrel in the near future.
Here are the important details you’ll need to make this trade…
Trade Metrics
| Underlying ETF Symbol: | USO |
| Call or Put: | Put |
| Expiration Month, Day, Year: | July 19th, 2013 |
| Strike Price: | $33.00 |
| Current Bid/Ask Price: | $1.09/$1.10 |
| Maximum Buy Up To Price: | $1.25 |
| Maximum Risk Per Contract: | $125 |
Here’s a breakdown of the important technical support and resistance zones in WTI…
Exit Strategy:
Remember, we want the price of oil to move lower. Our first profit target is $90.00. If downward momentum in crude builds in coming weeks, we may see it retest the lows set in late 2012 at $85.00.
Technical resistance is at $97.50. If crude trades above this level, conservative investors should consider closing this trade to keep downside risk in check.
Category: Commodity Trading
