Buy Alert: October 17, 2013

| October 17, 2013

Buy Alert: October 17, 2013

 

Option Strategy:

Buy US Oil Fund (USO) December 2013 $36.50 puts for $1.45 or better.

 

Commodity Outlook: Crude Oil

Bearish fundamentals are stacking up against crude oil…

As you know, we’ve been talking for months about how overpriced the crude market is.  Seemingly unending Middle East crisis headlines drove WTI crude as high as $112 a barrel this summer.  It was ridiculous to say the least.

Not surprisingly, crude dropped down to the $101 a barrel range in recent weeks now that Middle East troubles have cooled.

And it will likely drop further in coming months…

You see, US weekly jobless claims came in weaker than expected at 358,000 this morning… another bearish sign for crude. What’s more, the International Energy Agency (IEA) just announced the US will overtake Russia as the world’s largest oil producer in 2014.

Bottom line…

Growing US inventories and weak US demand point to lower crude prices.

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

 

Trade Metrics:

Underlying ETF Symbol: USO
Call or Put: PUT
Expiration Month, Day, Year: December 20, 2013
Strike Price: $36.50
Current Bid/Ask Price: $1.35/$1.38
Maximum Buy Up To Price: $1.45
Maximum Risk Per Contract: $145

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

Crude Oil

 

Exit Strategy:

Remember, we want oil to move lower.  Our first profit target is $95 a barrel.  If additional bearish data hits the market in November, we may see it drop to $90 or lower.

The risk control line is $106.  If crude jumps above that level, conservative investors should consider closing this trade to control risk.

 

Category: Commodity Trading