Weekly Update: January 22, 2014

Weekly Update: January 22, 2014

 

Commodity Watch:

Crude oil is on another bullish hot streak…

West Texas Intermediate (WTI) surged $1.76 a barrel to close at $96.75 in today’s trading session.  And that’s in spite of the lack of EIA data that usually graces the Wednesday session.  Thanks to the Martin Luther King holiday on Monday, EIA crude inventory data will be released tomorrow.

As far as our USO call trade goes…

WTI is within a whisker of our first profit target at $97.00.  Given today’s bullish price action, it’s likely we see that level breached tomorrow.  Remember, conservative investors should consider closing this trade at $97.00. 

At the time of this writing, our US Oil Fund (USO) February 2014 $33.50 Calls are trading for $1.38 per contract.  That gives us a gain of 58% from our buy in price of $0.87.

If you’re more aggressive, consider holding the calls for a run to our second WTI profit target at $100.

Let’s take a quick look at our other open position in natural gas…

 

Portfolio Recap:

 . . . . US Natural Gas Fund (UNG) April 2014 $21.00 Puts

Believe it or not, another brutal cold spell is headed our way.  In fact, the NOAA is now predicting frigid temperatures for the Eastern half of the US over the next 6-10 days.

The news sent natural gas exploding to $4.70 mmBtu in today’s session- the highest price since March 2011.

But here’s the deal…

At $4.70 mmBtu, previously reluctant gas producers are going to crank their well valves wide open.  So even though demand will likely go through the roof in coming days, producers are going to dump an enormous amount of gas into the US pipeline system to account for it.

Given this information, and the fact that natural gas is trading at a multi-year high, I suggest you hold onto the April 2014 $21.00 UNG puts.  We have a long ways to go until expiration and it’s unlikely gas can rise too much further in coming weeks.

To be clear, we may see a sudden jump to the $5.00 mmBtu area, but I sincerely doubt prices will hold long at that inflated level.

 

Category: Commodity Trading