[private][private]Crude oil down 3.50 today and about 8.5% from last weeks highs…..Saudi Arabia sent troops into Bahrain while the world was fixated on Japan which is kind of sneaky in my opinion. Libya is also taking advantage of the distraction. If things in Japan settle down a little the west will get focused again on Middle East and Oil will make new highs…..
IF YOU AGREE, EXPRESS NEAR-TERM BULLISH VIEWS WITH CALL SPREADS—DEFINE YOUR RISK
TRADE: USO ($39.50) BUY THE APR 40/42 CALL SPREAD FOR .60
-BUY 1 APR 40 CALL FOR 1.50 AND
-SELL 1 APR 42 CALL AT .90
BREAK-EVEN ON APR EXP:
UPSIDE: STOCK BTW 40.60 AND 42 CAN MAKE UP TO 1.60 (OR MORE THAN 2X YOUR MONEY)…BTW 40 AND 40.60 U LOSE UP TO .60 PREMIUM YOU PAID….
DOWNSIDE: BELOW 40 YOU LOSE THE .60 PREMIUM THAT YOU PAID, OR ~1.5% OF THE UNDERLYING.
RATIONALE FOR STRUCTURE: USO chart below shows last week’s high of almost 42.75, but also last month’s low of almost 36….that wide range is partially the reason for expressing my views with options, in particular call spreads…..vols have blown out in a lot of names and outright option purchases are expensive, but buying the stock exposes you to downside of close to $3 if i am wrong on direction in USO.