A Simple Options Play On Rising Oil

| March 20, 2012 | 0 Comments

USO call optionsGot extra gas money?  I hope so… with oil prices rising, you’re going to need it!

Oil prices are moving up and it appears there’s no relief in sight.  Since the beginning of the year, gas prices have risen by nearly $0.57 a gallon.  And just about everyone is cringing about how much it’s costing to fill their gas tanks.

What’s worse, now we have daily global events pushing up prices as well.  Increasing tensions between Iran and the international community.  The potential for another war in the Middle East involving Israel is getting closer to reality.  And of course, the cycle of inflation that’s now starting to brew in the US.  All of these things are contributing to higher prices at the tank.

A few weeks ago this was just banter, but now it’s impacting the average American family…

For instance, the day to day oil-related expenses of a typical family were rarely considered.  Now it has literally become a necessary line item in the family budget.  And unfortunately, the days of lower oil prices are now in the distant past.

You see, Americans can tolerate the current $3.75 a gallon for a while.  However, something different will happen as soon as we cross the $4 a gallon level.

And in some parts of the country, we’ve already seen the effects.  The average American is now forced to seriously consider making spending changes.

These changes will be similar to what we saw in 2008.

For instance, during the summer of 2008, gas prices skyrocketed.  Oil soared to a whopping $145 a barrel.  Driving slowed and vacations were cut because of higher airline prices due to fuel costs.  Even local governments cut their work weeks from five days to four days to save employees gas costs.

Now, as they say, “History always repeats itself.”

Just as we saw in 2008, the administration will be releasing some of its oil reserves.  This may stabilize gasoline prices for awhile.

But we all know this is a small band-aid being put on a big wound.

Bottom line…

With oil prices poised higher, is there some way to take advantage of the situation using options?

Of course… and you don’t need a lot of money!

In cases like this, I look at the United States Oil Fund (USO).  This ETF is the easiest way to gain exposure to rising oil prices.  The USO closely matches the price performance of light, sweet crude oil.

As I write, USO is trading at $41.29 per share.  So I’d use the simple options strategy of buying call options.

And as we know, when purchasing call options, we’re looking for a rise in the stock.  In this case, a continued rise in oil.  So let’s buy some USO May $43 call options for around $1.00 a piece.

This will give us plenty of time to watch our investment grow as oil prices rise.  Then we can use our profits to fill our tanks!  A win all the way around.

Safe trading,

Marcus Haber

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Category: Investing In Options, Options Trading

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.